What do the Numbers

Mean?
An Excerpt from the Lesson
The Shnider Group LLC

A JOURNEY TO ACHIEVING YOUR GOALS

THE SHNIDER GROUP LLC

 What do the Numbers Mean?

Starting a business involves so many areas of business that

sometimes we forget about the numbers.  Not a number
crunching person? No issues. The numbers are important
but more important is learning the value
and practical use of the outcomes. What do they tell us
about the business needs.  In this lesson we will be
reviewing and evaluating different methods and ways to
look at your data and providing tools & templates to use in
your business decision process.
The training includes the following topics:
Understanding the financials
Starting at the beginning-Financial Statements
Learning different ways to interpret the financials
Cost behavior and break-even analysis
Cash Flow-Inventory and pricing
Spreadsheet analysis and templates

This is an excerpt of "What do the Numbers Mean" to

help understand the interpretation and practical use of
the financial statements. 

One of the fastest ways to go out of business is to

let revenue and profits drive the decision making
process without considering the CASH FLOW
consequences.

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What do the Financial Statements Tell Us?

Profit & Loss Statement (Income Statement)

This statement reports all the income and expenses
that the business incurs during a specific period of
time, such as a month. The data is collected into
categories (accounts).  These accounts are reported in
this statement.
Balance Sheet
This statement lists all of what the business owns
(assets), what they owe (Liabilities) and what they are
worth (net worth). It is a snapshot of the company as of
a specific date (a point in time).  From a personal level,
we are all familiar with
assets (auto, furniture, home (if not renting),
jewelry, computer, television, etc.)
liabilities (debt such as mortgage on house, debt on
auto, outstanding balance on credit cards, etc.)
the difference is what the individual is worth. 
Many have provided the lending institution with a net
worth statement when they applied for a mortgage. 
For a business it is the same concept.  What the
business has, less what the business owes equals the
net worth of the business. We see this in the following
formula:
 ASSETS – LIABILITIES = Owners Equity (what the
owner is worth)
What the business has less what it owes equals what the
business is worth
Or
Assets = Liabilities + Owners Equity

 Another explanation is that Assets must be acquired

somehow.  They are either acquired by debt (borrowing
the money-liability) or through the owner putting the
money in (owner equity contribution) or a combination
of the two.

Who Cares-Where is the Value?

The owner should be able to read and understand
where the money is coming from and where it is
going.  From the balance sheet, the owner can look at
what he owns and what he owes.  What is owned are
the assets including inventory and accounts receivable
(A/R).  The A/R is the amount of money (sales) that
customers still owe for (have not paid).  The customer
is receiving FREE financing. The accounts payable
(A/P) tells us how much we owe our vendors.  The
company is receiving FREE financing.  Next, we will see
how to analyze this information.

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 What does all this Mean?
Knowing how to evaluate or interpret the numbers is
the answer to better management and decision
making. We can look at our outcomes and think that
we did a great job but until we compare from period to
period and year to year we are making assumptions
that may be correct or not. Many small businesses
compare absolute numbers or results from the data
but that is great but really does not give the
information what will be most value for the decision
making process.

We should be talking in relative terms. What does this

mean? It means:
look at the expenses as a percent of the revenue
Look at the gross margin and net margin as a
percent of income
Look at the comparison of the expenses from
period to period as a percent of income
Look at the amount of inventory it took to generate
that revenue
Look at how the assets have changed from period
to period
Look at how much overhead cost it took to
generate the income and compare to previous
periods

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 Horizontal/Vertical Analysis
When we compare our data across periods we are
doing a horizontal analysis. When we are comparing
and analyzing our data within the same period we are
looking at a vertical analysis. Each view will give the
business owner additional and valuable information
for making decisions.

From the same position one needs to understand that

not all costs act the same. Some costs vary with the
change in volume and some are actually fixed
regardless of the change in income (volume). 

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 Is it a Variable, Fixed or Mixed Cost?

Some examples of variable costs:

Commissions
Direct labor
Raw Materials
Credit Card Fees
Contract labor
Production supplies
Some examples of fixed costs:
Salaries
Rent
Utilities
Insurance
Office Supplies
Many of these costs could be Mixed Costs. A
mixed cost is one that is mostly fixed but could vary
as some point of a change in revenue. This is seen
in situations when rent is fixed up to a certain level
of income then the rent may go up add actually
may vary as income accelerates. Other examples
are wages (may need to bring on more help),
utilities ( may expand and increase product hours).

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 Application of the Type of Cost

The type of cost is relevant when the company is trying

to figure out their budgets for future periods. When
predicting revenue, the type of cost should be
considered of how it will affect the margins. If the
costs are variable, they will directly affect the margins
as a percent change in revenue. If the costs are fixed
(to a point), the cost will mostly, stay the same as the
revenue changes. By knowing how the costs behave,
the management can then understand how the
changes in revenue will affect the gross and net
margins.

All of these issues are part of know the numbers and

understanding the application and interpretation of
the data to enable the management to make more
informed decisions to aid in reducing the possibility of
failure or the lack of good, solid processes to get the
company to meet their goals and desired outcomes.

Neil P Shnider, MBA, CPA, CVA

nshnider@theshnider group.com; P: (614) 582-0208
Doris (Tussy) Shnider, BS in Ed, MA, MSW, PhD
tshnider@theshnidergroup.com; P: (614) 563-0107
Meet The Shnider Group LLC
WHY THE SHNIDER GROUP LLC?
Do you want to grow?
Do you want to increase your cash flow?
Do you want to increase your profits?
Do you want to decrease your costs?
Do you want to find new markets?
Do you want to improve your operations?
Do you want to understand how to keep more of
what you make?
Then The Shnider Group LLC is the partner
you want to help you achieve your goals!
They are practitioners who have been where you
are
They know your challenges
They provide needs driven solutions
They use academic knowledge applied to real life
experiences and examples
They understand your pain
They convert complex situations to usable
outcomes
They provide step by step action plans to walk you
through your desired results

Neil P Shnider, MBA, CPA, CVA

nshnider@theshnider group.com; P: (614) 582-0208
Doris (Tussy) Shnider, BS in Ed, MA, MSW, PhD
tshnider@theshnidergroup.com; P: (614) 563-0107
 The Shnider Group LLC
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