Importance of Financial Understanding in Business

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Graduating with a degree in acting to running a successful pet service company, the journey of Brian Koester highlights the crucial role of financial knowledge in business growth. Explore the challenges faced, transformative moments, and the impact of being financially savvy on business success.

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The importance of understanding the financials of your business

Brian Koester, Owner and CEO of Better Walker. Entrepreneur Introduction 13 years experience running and growing a seven figure pet service company.

In 2000 I graduated with a degree in acting and began waiting tables How understanding my financials became important to me In 2002 I couldn t wait on another table and started a dog walking and pet sitting company The Company grew but my piece of mind did not. I came to a crossroad.

The Crossroads Unclear on what my job should entail on a daily basis 20 employees dependent upon company for their welfare Anxiety over payroll even though we were approaching 1M in revenue Nobody in company with a business background

What Happened Goldman Sachs 10,000 small business initiative

The Terrifying Questions Is your business profitable? What s the profit margin on a dog walk?

You dont know what you don t know.

13% of Americans start their own business, so 87% of the population don t You re Amazing Half of those businesses will fail in first 3 years

Being Profitable does not take away from the love

Current Period 07/01/15 to 09/30/15 REVENUES Pet Sitting Dog Walking Power runs Other Revenue TOTAL REVENUES $ 14,000.00 25,000.00 8,000.00 400.00 47,400.00 COST OF SERVICE Pet Sitter Pay Walker Pay Power Runner Pay Payroll Taxes and Benefits-Direct Supplies Other Direct Costs TOTAL COST OF SERVICE 7,000.00 12,500.00 4,000.00 225.00 400.00 50.00 24,175.00 GROSS PROFIT (LOSS) 23,225.00 OPERATING EXPENSES Advertising and Promotion Automobile/Transportation Bad Debts/Losses and Thefts Bank Service Charges Business Licenses and Permits Computer and Internet Continuing Education Dues and Subscriptions Insurance Meals and Entertainment Merchant Account Fees Miscellaneous Expense Office Supplies Payroll Processing Postage and Delivery Printing and Reproduction Professional Services - Legal, Accounting Rent Salaries-Indirect ie Owner/ manager Payroll Taxes and Benefits-Indirect Telephone Travel Utilities Website Development TOTAL OPERATING EXPENSES 300.00 250.00 25.00 25.00 50.00 125.00 Profit & Loss - 25.00 600.00 200.00 600.00 25.00 50.00 200.00 20.00 50.00 250.00 1,600.00 6,000.00 425.00 500.00 100.00 900.00 1,500.00 13,820.00 OPERATING PROFIT (EBIT) 9,405.00 INTEREST (INCOME), EXPENSE & TAXES Interest (Income) Interest Expense Income Tax Expense TOTAL INTEREST (INCOME), EXPENSE & TAXES (50.00) 700.00 4,000.00 4,650.00 NET INCOME (LOSS) $ 4,755.00

Current Period 07/01/15 to 09/30/15 Current Period 07/01/15 to 09/30/15 Raising Prices by 10% REVENUES Pet Sitting Dog Walking Power runs Other Revenue TOTAL REVENUES $ 14,000.00 25,000.00 8,000.00 400.00 47,400.00 $ 15,400.00 27,500.00 8,800.00 400.00 52,100.00 COST OF GOODS SOLD Pet Sitter Pay Walker Pay Power Runner Pay Payroll Taxes and Benefits-Direct Supplies Other Direct Costs TOTAL COST OF GOODS SOLD 7,000.00 12,500.00 4,000.00 225.00 400.00 50.00 24,175.00 7,000.00 12,500.00 4,000.00 225.00 400.00 50.00 24,175.00 Walker Pay remains the same GROSS PROFIT (LOSS) 23,225.00 27,925.00 OPERATING EXPENSES Advertising and Promotion Automobile/Transportation Bad Debts/Losses and Thefts Bank Service Charges Business Licenses and Permits Computer and Internet Continuing Education Dues and Subscriptions Insurance Meals and Entertainment Merchant Account Fees Miscellaneous Expense Office Supplies Payroll Processing Postage and Delivery Printing and Reproduction Professional Services -Accounting Rent Salaries-Indirect ie Owner/ manager Payroll Taxes and Benefits-Indirect Telephone Travel Utilities Website Development TOTAL OPERATING EXPENSES Using financials to make decisions 300.00 250.00 25.00 25.00 50.00 125.00 300.00 250.00 25.00 25.00 50.00 125.00 - - 25.00 600.00 200.00 600.00 25.00 50.00 200.00 20.00 50.00 250.00 1,600.00 6,000.00 425.00 500.00 100.00 900.00 1,500.00 13,820.00 25.00 600.00 200.00 660.00 25.00 50.00 200.00 20.00 50.00 250.00 1,600.00 6,000.00 425.00 500.00 100.00 900.00 1,500.00 13,880.00 merchant fees go up 10% owner salary beyond dog walking OPERATING PROFIT (LOSS) 9,405.00 14,045.00 EBIT INTEREST (INCOME), EXPENSE & TAXES Interest (Income) Interest Expense Income Tax Expense TOTAL INTEREST (INCOME), EXPENSE & TAXES (50.00) 700.00 4,000.00 4,650.00 (50.00) 700.00 4,000.00 4,650.00 NET INCOME (LOSS) $ 4,755.00 $ 9,395.00 Profit doubled

I own a professional pet sitting company I m a professional pet sitter Implies being a professional pet sitter AND understanding that you own an entity that has value. How does this change things? Bonded and Insured Know pet CPR Understanding what gives your business tangible value Educated in animal behavior Taking on the responsibility to run your business in a way that is rooted in sound business principles and adds to it s value Taking seriously the care of animals as a profession

The Life of a business ends in one of two ways.

STRUCTURAL / FINANCIAL Is the staff W-2, 1099 or fake 1099 (cash under the table)? Pay structure comparison? (i.e., how calculated, frequency, etc.) Management salary included in SG&A expenses? Licensed, bonded and insured? Review policies/costs. Initial questions asked by investor looking to acquire pet sitting companies CLIENT / ROUTE Route density by staff? Client contracts? 9 to 5 customer service or 24-hour expectation? Two-key requirement? STAFF Has staff already undergone federal, state and local background checks? Employment contracts on file for all staff? Company has training manual? Reviewed? Software platforms used by staff?

In order to place a value on your business you must understand your financials Most small companies are valued using one or more of the following methods, all of which take into account the company's historical earning power(Financials): DEBT PAYING ABILITY(IfI take out a loan to buy your company how quickly can I pay that loan back using your profits) CAPITALIZATION OF EARNINGS OR CASH FLOW(EBIT/buyers expected return on investment) GROSS INCOME MULTIPLIERS (An industry multiplier applied to some aspect of your P&L)

Current Period 07/01/15 to 09/30/15 Current Period 07/01/15 to 09/30/15 Raising Prices by 10% REVENUES Pet Sitting Dog Walking Power runs Other Revenue TOTAL REVENUES $ 14,000.00 25,000.00 8,000.00 400.00 47,400.00 $ 15,400.00 27,500.00 8,800.00 400.00 52,100.00 COST OF GOODS SOLD Pet Sitter Pay Walker Pay Power Runner Pay Payroll Taxes and Benefits-Direct Supplies Other Direct Costs TOTAL COST OF GOODS SOLD 7,000.00 12,500.00 4,000.00 225.00 400.00 50.00 24,175.00 7,000.00 12,500.00 4,000.00 225.00 400.00 50.00 24,175.00 Walker Pay remains the same GROSS PROFIT (LOSS) 23,225.00 27,925.00 OPERATING EXPENSES Advertising and Promotion Automobile/Transportation Bad Debts/Losses and Thefts Bank Service Charges Business Licenses and Permits Computer and Internet Continuing Education Dues and Subscriptions Insurance Meals and Entertainment Merchant Account Fees Miscellaneous Expense Office Supplies Payroll Processing Postage and Delivery Printing and Reproduction Professional Services -Accounting Rent Salaries-Indirect ie Owner/ manager Payroll Taxes and Benefits-Indirect Telephone Travel Utilities Website Development TOTAL OPERATING EXPENSES Looking at our 10% rate increase again 300.00 250.00 25.00 25.00 50.00 125.00 300.00 250.00 25.00 25.00 50.00 125.00 - - 25.00 600.00 200.00 600.00 25.00 50.00 200.00 20.00 50.00 250.00 1,600.00 6,000.00 425.00 500.00 100.00 900.00 1,500.00 13,820.00 25.00 600.00 200.00 660.00 25.00 50.00 200.00 20.00 50.00 250.00 1,600.00 6,000.00 425.00 500.00 100.00 900.00 1,500.00 13,880.00 merchant fees go up 10% owner salary beyond dog walking OPERATING PROFIT (LOSS) 9,405.00 14,045.00 EBIT INTEREST (INCOME), EXPENSE & TAXES Interest (Income) Interest Expense Income Tax Expense TOTAL INTEREST (INCOME), EXPENSE & TAXES (50.00) 700.00 4,000.00 4,650.00 (50.00) 700.00 4,000.00 4,650.00 NET INCOME (LOSS) $ 4,755.00 $ 9,395.00 Profit doubled

Before raising prices After raising prices 10% Comparing Values after raising prices by 10% EBIT = $14,045 for 3 months EBIT= $9,405 for 3months $14,045 x 4 = $56,180 annually $9,405 x 4 = $37,620 annually Buyer wants 25% return on Investment Buyer wants 25% return on investment $37,620 / .25 = $150,480 Value $56,180 / .25 = $224,720 Value