Business Health Series – The End of Year Checklist: Prepare Your Business for 2027

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Thank you everyone for joining us today. And for those of you listening to the recording, welcome. Looking forward to spending some time with you today. I am Gershon Morgulis. I am the founder of Imperial Advisory. We are a CFO firm. We provide CFO level financial leadership to growing businesses, either as a fractional CFO.

On a project basis or as an interim solution when a senior finance leader exits. We typically work with two types of clients: either CEOs of successful growing companies who need strategic financial leadership, but aren’t yet ready for or don’t want to pay for a full-time CFO. But basically, they don’t necessarily need a full-time CFO just yet, but they do need someone in that seat. And we help CEOs like that with growth planning, cash flow, profitability.

Preparing for transactions or an eventual exit. Second category of people we work with are CFOs at larger organizations that have some kind of gap where they need extra resources to help on things like FPNA, audit readiness, MA due diligence, when they’ve got issues on their team in terms of bandwidth or expertise. I’m gonna highlight one thing that makes our team

Different than

Others out there and maybe two things. and those are basically one, we’ve got an incredible amount of experience on our team. All of our CFOs have over 30 years of experience, and generally speaking, we’ve got 10 years or more sitting in the CFO seat. And the other thing is that when you come to us, you’re not just getting your CFO, who’s obviously going to be amazing, but you also get the background of

Of the whole team. So our CFOs are really supported by the entire organization and by the other CFOs and everyone else. So you get something really special when you get us. And we look forward to working with you and to working with people you know. Anyway, today I am very excited to have two people from our team presenting. We’re gonna be talking about.

Ending off 2026 from a financial perspective, doing the right things toward the end of the year to set the stage for doing the right things and growing and having a successful 2027. So I’m really excited to have Dennis, one of our amazing CFOs, and Stephanie, our FPA manager. They both have incredible experience. They’ve been doing a lot of really good work in their career and now a lot of good, really

really good work at our clients. And without further ado, I’m going to hand the mic over to them. Well, nice to meet you. I’m Dennis Furlani and yeah, I’ve been working the last year with Imperial on a number of clients, either projects or actual retainers that we work on. my background is originally finance and then fintech.

like banking and fintech and then I’ve worked also with with SaaS companies and also with consumer good companies we’re helped them organize their finances and also helped a few exits. So we’re gonna get started here. The checklist why is it why do they fail? Checklist if you treat it like a checklist it’s gonna fail. Because then you just look at it as a as just a

bureaucratic thing that you do at the end of the year, you go through the checklist and everybody is fine. And you you you file it away and you forget about it until you have to do the checklist the the following year. If you treat it like that, or if a lot of companies don’t even do that, then you’re not going to get the full benefit of what this checklist is supposed to do. Obviously it’s it’s a look back where you you prepare the company for uh you know

All the all the reporting and stuff that you have to do, if you have to report to to like a board or investors, but also getting ready for your taxes, you know, doing doing your your your reconciliations and all that stuff, which is the historical stuff that you need to do in order to prepare yourself to to effectively close off the year and start off the next year. But the real value and input, value of the input in the in the checklist is is not.

that so much, even though that’s very important. It’s an opportunity to set how you’re gonna look forward in the company first. And second, it’s alignment. Okay. Because a lot of times what happens is the way we set up different departments, the alignment of their incentives sometimes are not

perfectly aligned. And so you have the departments working in slightly different directions and emphasizing different focuses. So the the thing that you also you do with the checklist is to set what we’re going to be measuring, why we’re going to be measuring it, and how we’re going to be measuring it. Like I can give you an example, you know, if it’s a company that is sort of looking to grow organically

and like let’s just say it’s a a SaaS company and they’re looking to grow organically, they’re they’re adding different services, and but they do have a lot of expenses that they need to to to go through in terms of developing like you know different types of software platforms or or or things that that the software does, then you know the focus is how are we gonna how can we grow organically?

With the cash flow that we have, how do we plan our capital investments? How do we make the the growth grow? And so what are our objectives? Is well, we’re gonna manage the cash flow, make sure we we have the cash flow that we need for all of the stuff, and then how do we use that to grow? Take the same SaaS company that just did uh did a series A, and their objective is to get to uh a series B with a huge amount of growth, and they’ve got a bunch of capital sitting in there.

Then the objectives are a little different, because because what what do you need in that kind of company is you want to grow fast. So you you have a lot of capital. And so you’re gonna use that obviously to develop, continue developing your products, you know, maybe putting some AI in there or something like that. But the other thing is you’re probably gonna take a big chunk of that and you’re gonna start buying buying a market share. So you’re gonna spend on advertising, you’re gonna do promotions, you do stuff like that, which

When you look at it with with the eyes of an organically growing company, it’s scary because you’re actually spending uh a lot more to grow the company. But pardon me? Okay. And the reason you’re doing that is because the way you’re gonna get the maximum value for the company when you go to series B or an exit is that you can show

a fast growing SaaS company. So your focuses are gonna be on growth and stuff like that.

So, that’s where the checklist helps you to set out what are the, what do we need to measure? How does each department contribute to that, and how do we align all of our goals? And that’s really what the the strength of the checklist is. And the output should be an integrated story that that that integrates the PL, you know, in terms of

How are we going to run the profitability? What kind of expenses are we going to have based on our objectives? It’s going to be the balance sheet. What kind of investments do we need to do? And how are we going to treat the cash flow? Because, like, if you’re going out there and buying market shares, spending a lot on advertising, probably your cash flow is going to be negative. And then we just have to know how we how we how we track that and look at the burn rate and when do we when do we stop it? But again, it’s a decision made before you really start off the next year.

So that everybody’s sales, accounting, you know, manufacturing if have manufacturing, development, if you have development, customer service, all are aligned to the same, same objective. So pass it over to to Stephanie. Thank you. good morning, everyone. Thank you for joining our seminar. I’m Stephanie Giambalvo, which is as a brief introduction.

I’m the FPA manager and AI integration specialist working for Gershon. I’ve worked for several consumer package good companies as well as in um financial services. and a lot of my experience came also within the manufacturing space. I’ve also done much cost accounting and I’ve also done much of what you’ve actually seen on this let’s call it a checklist here.

So if you just take a look at the first kind of pillar of our our year end checklist and we want to think of it more as like a process as Dennis said. So the first kind of component and pillar of this is the look back, right? So we want to close our current year cleanly, and we are actually having these conversations right now with many of our clients. So first, where are we going to land for the year? The PL, the income statement, the balance sheet, and potentially the cash flow.

With all of these components here, this will allow a business owner along with their team to make decisions, right? So such as any capital purchases, the payment of any bonuses or any other type of equity distributions to owners. And it also is a way to also prepay or defer any expenses so that once you know where you land for the year, you can make better decisions in the future. It becomes a process. It’s not just a checklist. We’re using it to make decisions.

Just a couple of examples. When you establish strong processes, even within operations accounting, you’re able to identify and you’re able to see where you land for the year. So a couple of processes that I see streamlined across all sorts of businesses, accounts receivable and cash. If you have a very strong process there that’s viable and that is sustainable, then you’ll be able to identify issues. So for example, it’ll be able to determine if one of your customers is

Delayed in their payments? Did something change all of a sudden? I’ve seen in my past history that a client all of a sudden changed the way they submitted their invoices or the process around that. So that though their payments were no longer coming through. But being able to identify gaps is very critical in accounts receivable. Also, for example, if you’re in a package goods in business, any outstanding receivables that may have any chargebacks, discounts also within your aging and your receivables.

You really want to be able to understand those risks and really be able to accrue for it in the correct year. All of the that accounting and AR process will help do that. Another process that I recommend as a part of this look back and closing the year strong is an accounts payable process. So a lot of times what we would see is that invoices that are not either processed or the receiving paperwork, the invoice and all of that is not together.

So a lot of times what happens is that ultimately the payment never gets processed, and at times the invoice is never booked into the system. I also recommend to some extent having a statement of account, especially of your top suppliers. That will also help you identify anything that is outstanding. And critical, especially for manufacturing companies, I’d say, which my experience is in, is analyzing those inventory levels. For some of our clients, as an example, this is a monthly exercise.

At least on a quarterly basis, and for sure, most definitely for your auditors, you would want this on an annual basis. Some other things you may want to consider within this first pillar, looking back and closing your year cleanly, is any tax efficiency. So at this point, any participants on this call or listening to this stream, you really should be talking with your tax advisor now, because now is the time where you’re really starting to make decisions on what you can prepay and any other changes.

And there are also maybe changes in uh legislation that may impact depreciation, especially if you are planning on making a capital investment in equipment. That’s something you would also want to consider. Also, something that you also want to review is your revenue cutoff. So uh at this point in the year, it’s now November and the beginning of November, there’s approximately nine weeks left of the year. So I see from the poll here that some people do start before October.

to start their year end process. So at this point, since we are in November, we should generally have an idea of where we’re gonna land for the year in sales and if there will be any revenue pulling into this year versus the next year. Those are just some decisions that we would want to make at the end of the year with revenue cutoff and accruals.

Same thing goes with any year-end entries. If there are any um additional accruals that need to be booked in the year, this would all come with this kind of review process. and also another component of this would be testing your covenants before the end of the year, seeing how your liquidity is. The controller of your organization should be very, very well aware of what the accruals

requirements are. It’s probably something that’s being provided to your bank or to your lenders, just depending on what type of loan you have or what you need, to understand where you’re going to be by the end of the year, to understand if there’s a cash problem. And then another kind of important thing that I feel, you know, it’s it’s very it’s very critical to the success of closing a year is the audit process. So pretty much your PBC list or your provided by client list.

your controller or your accounting team should really already be aware of what those typical asks are, right? For the the provided uh by client list. That would mean a general ledger account, maybe directly from your ERP or from your your software, any bank statements or any maybe accounts receivable ledger details. Those were all kind of be at a very high level some items that you would want to include.

so now as a part of this whole process for closing the year and opening the next, once we’ve established and have a good landing and grounding for the end of the year, then the most critical part I would say for the year-end checklist or process or setting yourself up for the next successful year is really going to that look ahead. And what you see on your screen are those next few pillars. So in pillar two, we wanna consider.

looking forward and building next year’s plan. And as Dennis had mentioned, that’s gonna require alignment from all the various areas of your organization. We have that’s operations, human resources, and finance and the warehouse. You want to make sure everybody is in sync. Then we also want to understand how we’re gonna fund it. So are we going to need new loans, lines of credit, understanding your debt services, if you’re making um payments, how much of that is interest in the beginning.

Capital investments. What are types of capital investments are you making for the year? And what are some of those justifications for that? And then again, and also very critical, and this is we’re gonna go into this next pillar of the process of the year-end checklist, two through three in the next section, which is really what we’d say the most critical part. And then, like Dennis had mentioned, your goals could be different if you’re raising money and you want to just quickly have a very profitable company.

Then you you would have different set of goals than someone that’s investing in, for example, a new piece of equipment and then having to hire to increase your capacity and potentially to hire new employees. So with that being said, Madhura, do you mind cueing just that other mid-session poll? just which of these days which of these does your current budget include? And as we start going through the next kind of

Part two of our segment, we’ll start going through some of the components and then we’d like to go through a live example with the team. So then you want to just take off part two? Yeah, sure. So one of the most important things when I was receiving budgets that I didn’t prepare, the one thing that I hated was getting my final budget in March when my year started in January.

So the idea of starting now is precisely so that everybody starts understanding exactly where they go. The second thing is one of the easiest ways people do budgets is just they just say, well, let’s just do five percent more than uh one from last year. And really I’m a true believer, and what we here in Imperial are believers is that you have to actually start, it’s a bottoms up budget, bottoms up up projection.

And that you actually start with first of all identifying the critical success factors. And it’s not a spreadsheet, it’s actually what are we shooting for? So, for instance, if you’re a company that you want to raise some cash and that Ebitta growth is important, that how are we going to focus the the the the growth so that Ebitta shows this ex this incredible growth? If you’re in a a a different kind of company that that getting market share is very important, then how are we gonna show

and how are we gonna optimize to get the the the number of clients up so we have to start with that and once we decide what that is that we’re shooting for and usually shouldn’t be more than three to five really clear goals then we start building the revenue drivers and again we what you start is not from just let’s just do a five percent increase but if you sell widgets how many widgets are you gonna sell

How much how what different varieties of the of them are you gonna sell and put them all together and actually do the the actual physical growth in those different things before you so that you understand what is the physical growth that you’re gonna be doing, whether it’s it’s SaaS products, whether whether whether it’s consumer goods, or anything like that, but that physical growth is is gonna is gonna drive everything else. Once you’ve got that built out.

Also, the biggest thing there is it’s easy to explain. So when you’re looking at it going forward and you say, Why are our sales down five percent? you can actually look and say, Well, we planned for a hundred of uh of these products to be sold, and we only sold 90. That’s why we’re down five percent. So it becomes it it it when you you build it off of that, anything going forward on a rolling forecast basis and the FPA work.

Actually, it is very actionable because you’re actually going to go look at the base activities that you’re doing as opposed to just some percentage over last year. So, and in and when you’re talking to bankers for loans or you’re talking to investors, it’s much easier to explain and justify where that comes from. From there, then you should do uh you know, and your closeout will give you a really good indication.

of what your cost assumption assumptions should be for the for the new year. Maybe you can get some volume discounts or maybe for instance, if you move from, you know, manufacturing a thousand pieces to 1500 pieces, you’re your your pricing changes on packaging or or or or on the platforms that you use if it’s a SaaS company. So these are the things that you have to look at and then start building out what what I like to do is

I like to build out unit economics first for the actual the actual value uh you know the we put we produce one product, we use this much labor in it, we use this much materials in it, these are the services that we have. And so that you have an actual uh unit economic and you know that that product is actually within the parameters that you’re looking for to uh for it to be profitable.

And this is where all the assumptions on your on your different external factors come in. Okay. And so you need to build that into it. And you need to because you know if you get a huge discount for doubling the volume of a certain product that you that you order from a supplier, you know, the the here you can actually plan for it, because maybe you have two suppliers for the same product, but if you

Concentrate on one, you can reduce your cost. So it’s a way of planning how your costing is going to come out for for the product and do it up front and have certain pick the milestones that you’re gonna be that you’re gonna be measuring against to make sure that you’re you’re being successful. The second thing is, or the other thing is uh the headcount. Okay. So it’s one of the you usually it’s one of the biggest, if not always.

the biggest expenses that that that we that we face our our customers have and a lot of times that’s the hardest one for them to to effectively plan and so they don’t plan it really and just you know the production manager comes I can’t produce anymore I need somebody is what happens a lot of times halfway through the year. So what what you need to do here is you need to look at your plan

of producing your product or selling your product or or what whatever it is you’re doing and how you use uh um headcount and how you use employees and understand where are the trip points where you would have to increase payroll or increase the number of employees and then build that into your plan so that you know um how that affects your overall cash flow because really what happens is

Uh every time you add

Headcount is not a one-for-one relationship in terms of growth. It’s chunky. So what ends up happening is you hire somebody, you start getting more and more and more and more benefit from them so that the profitability of the product goes up, but you get to a point where you can’t produce anymore and you have to hire somebody else. And then when you hire that person, that salary brings down your profitability until you build it up. So you it it’s something you need to build into your projections.

So that you understand these this choppiness that you’re gonna see in your expenses and the effect that it has on your habitat or your or your operating income or your net income. So that that’s the other thing. And then there’s there’s chunky payments that sometimes we don’t plan for, like insurance payments, different kinds of premiums that you have to do, IT renewals, platform renewals, things like that.

And a lot of them are single calendar events or or maybe they’re quarterly or or uh biannually. So the more of these that you can build into your plan, you the this will give you this will give you a chance to take a look at how your cash flow eventually, when we when we get to that, will will play out. And then there’s other things that will increase based on volume, like for instance.

if you’re using Stripe to collect uh payments, it’s a percentage of of your sales, but if your sales double, you’re going to be paying Stripe double. So you have to build that into it. So each one of these lines has a different sort of algorithm that you put in or a different some are just hard-coded, some some are a relationship with the volume, but they have trip codes when they go back past a certain volume pricing changes.

And some of them are like like employees, it’s when you hit certain milestones, it’s that chunky step up that negatively impacts your profitability until you get the most until you optimize the utilization of that. And then then there’s other things like you know, the payroll taxes, wages, um raises, well, the payroll taxes go up with headcount and go up with salary.

retirement benefits the same, workers comp premium will go up with the the salary, but then there’s capital investments. So if you need to if you need to buy, if you know that you have a machine that can produce a thousand a a month of your product and you’re quickly getting to the thousand, then you know you’re gonna have to invest in in in in a new machine. The thing about that is that new machines, and when Stephanie starts talking to you about the cash flow.

We’ll see that. That new machine is not going to pop up on your p PNL. It’s going to pop up on your balance sheet. And it’s going to affect your cash flow. It’s not going to affect affect your profitability unless, you know, because you just have this new machine, you can be actually produce more. But it might be a huge either if you’re if you’re financing it, that’s an additional expense that that’s going to pop up with the insurance. Or if it’s if you’re just buying the machine, that’s a huge hit to the cash flow.

And so we need to plan for these things so that we can actually build up the cash flow so that we’re we’re we’re never going below the the the levels of the the the comfort levels that we have. You know, you set a minimum level of cash reserves and you want to always make sure that you stay above those cash reserve levels. And then the last thing is if we work with with banks, depending on the type of uh of

financing we get it’s like if you do factoring you’re gonna have to report on your on on have have your borrowing base the calculation where you’re gonna have to have you know probably 130 percent or 150 depending on what the con conditions are of receivables to to uh to debt there’s other covenants that you have to work towards too that you have to measure is debt debit duh

you know debt service covering ratio which is is you know how how much can you cut if you have an operating line can you cover the debt service then there’s the the total total debt service which is the principal payment plus plus the interest all of these are measured usually banks will measure them against ebit or working or operating income so these are things you also have to plan for because if you trip the covenants

if you just trip them and don’t say anything, you’re gonna have some trouble with your bankers. And if you know it’s gonna happen, the the the this type of planning will allow you to talk to your banker so that they can give you uh a variance on on the covenant. Like for instance, if you’re you’re buying a new machine and it and affects your cash position, but you’re gonna recover in a couple of months, it’s better to have these conversations before it happens versus after it happens. So the planning is a lot more.

than that. And then once you’ve got this plan built out, okay, and it’s it’s tied directly to you know the each one of the the bottoms up, you know, you’re looking at volume and then from volume you’re calculating cost and then you’re calculating the expense. So you have something that you can actually understand. Um the the the the cool thing about building a a model like this is when you flip it over and turn it into a rolling forecast.

Since you are actually measuring against physical things that you’re happening and milestones that you’ve already planned, when you when you run it, when you do your FPA against this and then put that into a rolling forecast, it actually project tells you how things are changing.

a lot of companies that we come in with that are on the smaller side, this budgeting discipline is new new to them, especially the way we’re doing it. I mean, you know, they’re focused on sales, they’re focused on growing, and they’re doing that, which is where their focus should be.

But this type of uh of of of planning it takes away a lot of the surprises. And I’m gonna be telling totally honest with you. More companies fail because they’re succeeding too fast than actually not not not selling. They run out of cash, then they start taking out these stupid loans and stuff like that to cover it because they didn’t plan it properly. Because you know, the cash flow is the key, it’s the lifeblood of the business. And if you’re not budgeting

And then you’re not projecting your cash flow and then comparing to what you plan versus what what’s happening and not seeing uh what’s happening in the future. So you can solve the cash flow problem now. It’s a lot harder to solve a cash flow problem if you have got two weeks to try to make payroll. If you know it’s gonna come up in three months from now, then then you can do things. But you know, two weeks and a ahead, you’re gonna you know a very a high interest loan, some sort of hard money loan, or whatever it is.

get by and this this starts accumulating and causing problems for the business. So this is all product of you understanding the past. So if you understand how you close, what your unit economics were when you closed, where the where the chunky payments that you had last year and if they’re going to repeat this year, you build that all into the the the new plan, then you’re always going to be looking at least two or three months ahead and be able to plan for things.

as opposed to solve uh put out fires.

I think uh I I don’t know if this the slide is the showing the overall process. I just for anyone listening to this either today or to the recording, what Dennis is referring to is often called merchant cash advances. And they offer you money, they’ll usually get you money within twenty-four hours and or sometimes get you money really, really quick. And

As Dennis was saying, you hold on to that, you end up refinancing. Once you go down that path, it’s often very, very difficult to get out. And often, if you had just known what was going to be happening, if you had that cash flow forecast and you knew in a month there was going to be trouble, you could line up the money, you could talk to your talk to your customers, maybe get some prepayments, you can talk to your vendors, figure out offer discounts.

Stuff like that. Right. and discounts, you know, sometimes are expensive, but they might be a better solution than the merchant cash events. But also there’s vendors. Sometimes you call and we did a webinar on this recently with Rick Katz, one of our other CFOs, where he was, you know, he was talking about if you call a vendor and you say, Hey, I’ve got a problem. Here’s what we’re gonna do. You know, own it and you talk about it ahead of time. You can usually work something out and then you solve your

assuming that you have the unit economics that Dennis is talking about, and it’s a good business and everything works, and you just have this temporary, lumpy cash flow for whatever reason, good planning, knowing about it, and then pressing on some of the different options. Can you look I I I I worked once with one company that was using merchant uh MCA’s merchant cash advances, and then I have them take a list of their top 10.

Receivables, because they were collecting around 60 days. And I said, look, let’s just try to get out of the merchant cash advances. Call these 10 people and let’s give them a 2% discount if they pay you in the next five days. Half of them said, Yeah, I’ll take it. And they paid. And they and and and this this person got out of the this company got out of the merchant cash advances. And when we compared the cost of the 2% discount versus the cost of financing on the MCA, they saved.

six or eight percent additional on on the top balance if not more simply by doing that. But the reason they could do this is because they could see the problem coming a ahead. So they called them and say, look, give me give me this discount. The one thing thing is they would get a call from some of these and say, look, I’ll pay you right now if you continue giving me the two percent discount. And since the company was always tight on cash, it just created a really interesting symbiotic relationship

with with their with their clients and that’s sped up their their cash conversion cycle significantly. Right. And to your point, the merchant cash advance could cost one or two percent a week. Yeah, exactly. If you’re shaving off 60 days, keeping that money outstanding for 60 days is, one or two percent compounded potentially times eight or nine, that’s going to be incredibly, incredibly expensive. That could cost you 10, 15%. And there you solved it all for two percent.

Mm-hmm. That’s a great story.

Okay, and move on to Stephanie. Balance sheet and cash flow. Yeah, I just wanna just pause for one minute. just just everything that we just kind of discussed about the planning process and about kind of going into the year, just using just a very simple example. so as an example, we want to increase our sales volume for the year and the year is dry it’s driving a need or at least an analysis for additional capacity.

So getting all of the various departments on board to make a decision like this for your next year is very critical. And a decision like this, such as we would be hiring three additional production employees to a second shift, it would require all these various components of that planning process, right? So we would it would touch our head count as then it had mentioned, which is our wages and all those. So how many more heads do we need to hire? In this case, we’re saying three.

all the various impacts to all of the other benefit accounts and then also how we’re going to fund that right which I think kind of leads us into the next part of the process and just kind of the next part of our presentation. So I’m just gonna go back to this slide here. So kind of our balance sheet and cash flow, a PL, like we keep saying, uh an income statement,

Is and a budget is not complete without that balance sheet and cash flow build and review. And as Dennis had also mentioned, forecasting in the future. We still want to know, we want to establish a baseline for the year, but then throughout the year, those expectations are gonna change, whether in a positive or a negative way. So our sales are gonna increase.

So, what that means is that we’re going to increase our accounts receivables in our balance sheet. And then, in turn, we need to make sure we have those strong collection and processes in place. This would also impact our inventory levels. So, how much inventory are we do we currently have on hand? Our inventory turnover ratio, which is something also that we also need to measure. And then also the equipment.

As also as it being a part of that decision. So what type of equipment is going to be needed? Are you just going to be expanding on the current equipment that you have? Or are you actually going to be installing, for example, a new line and that you would actually need three more people to run this line? So if your plan does need financing or if it does need any type of backing, it’s good to get all of that started, earlier in the year, right? So that would be something that you would want to start.

earlier in the year. Other things such as capital investments, uh they they always would need a justification. in Dennis and I’s experience, we’ve done ROIs or return our on our investments or any type of paybacks for lenders and for board members. So for example, we want to obtain a $2 million loan for the bank. The bank may want to see historical financial statements.

where the growth is driving from, maybe the customers or clients that will be driving that increase. Then you want to ask other questions such as inventory. You know, what level is actually optimal based on your inventory turnover rates? do you have too much? Do you have too little? So these are all the other considerations that strongly impact the balance sheet, specifically cash. So you also want to protect your covenants and your borrowing.

So, like Dennis said, if your inventory and receivables are seasonal, maybe you have an uptick in business and you want to be able to project where any of those where any of those swings may happen. And then also very important, besides funding it, understanding it, and analyzing, uh, we also want to be able to measure it. you know, three to five metrics is generally optimal.

especially from maybe a PL standpoint, you know, represented as a percentage of your uh gross sales is one metric. or a percentage, let’s say you sell a widget. So it would be a sale per widget. Now, once you start looking at these, it it helps you start determining um if your volume is down. So if you’re looking at that, you would compare your volume, and then if your price starts coming down overall.

Hey, maybe there is a mix. Maybe we’re selling a different type of widget than we anticipate than we originally anticipated in our plan. So that mix factor and defining some of those key metrics help you stay on track. In addition, some other balance sheet metrics that you may want to consider. uh Day sales outstanding, very critical, especially for the cash conversion cycle. How long is it actually taking you to collect?

your revenue from your clients and from your your customers. also days payable are outstanding, And as Dennis had mentioned, how many days is it taking you to pay your clients? Can you call can you call your supplier? Hey, you know, this is where we see the outstanding receivables are. We anticipate this in the future. Let’s work together.

Coming up with that. so you’d be able to adjust your days payable outstanding based on some of those metrics. So and then I just want to share on my screen here. Just to add while you’re doing the screen, like for instance, one of the companies that we were working with, the VP of revenue was in charge of collections as well. And so rather than have individual

measurements on, inventory level. They were they were responsible for the overall cash flow coming in. And so what we did was we produced well we we gave them a

KPI, which was the cost con there the the the the the speed at which fuck I just forgot the the the the the the the the word the the the cash conversion cycle so which is the you know how much are you investing in it in inventory how much are you uh in receivables so how many days actually do you need to convert a s a sale to cash so if you got 30 days in inventory and 30 days of collections

One sale is actually 60 days of financing that you have to do in order to do that. So, you know, depending on what it is, you can decide the the design a KPI that that that that actually drives what you’re looking for. And so like when we did this with for the for the for the the the the VP of of of revenue, that

that person that that company had a a cost conversion cycle, a cash conversion cycle of 78, 80 days. And when we made that a a priority for the revenue, because this was a SaaS company, so it was no inventory, it’s more the the receivables and the payment, the time for payment, they dropped off 30 days on that. And it was like you no one had thought no one really focused on that before.

Until we made it a a KPI that was measurable. And thirty days dropped dropped lending costs by t by twenty percent because the cash was coming in a lot faster. So it depending on what the company is, what you’re doing, and where you are, these type of KPIs are very important.

so ultimately what we really want to summarize is that the closing your year and a year-end checklist is not just that checklist, right? It’s really a process. It’s a way to engage conversations and to gain alignment amongst all of the various departments, like we keep saying, operations, sales, finance, human resources.

It touches all those areas, your sales growth, your sales plan for the year, um, costs related to that, how it’s going to be funded through finance and headcount approvals, all through human resources. So kind of all those emp all the components are extremely important. And as we had mentioned, it’s it’s more difficult to plan for your next year if you don’t have a good current process in place for your year end check.

list as an example. at Imperial, you know, we do help our clients with the checklist, right? We kind of have our own processes, we have our own kind of schedules that we work through with our clients, right? So for example, you create a checklist for the year end.

Every item has to have an owner and a date on it. We want to make sure that we follow through on some of those items, right? It’s also dependent on the sequence of it. if you’re closing the year, if you really want to be done closing your year by the middle of December, call it, even if everything is not final, you want to have a very good indication of where you’re going to land. You definitely want to um start pulling that all together in a very clear and concise way. And then, as well, you want to call to action.

offer we want to also we we want to be able to act on all of these. if we don’t have a viable plan in place with the resources and the understanding and the commitment of all of the teams, many of these checklists fail. I mean I’ve seen it in my own experience where Dennis had mentioned as well that we’ll have we’ll build a budget, we’ll do it even for a two and three year view. And then the individuals who are responsible for driving that growth

or managing those budgets don’t even have the information for three or four years out. So through some of those these comprehensive checklists and all these other items, this is really how we pull it all together. Just adding on to that, I think the distillation of this whole process, okay, is obviously you’re preparing for your your your year end to maximize on

your tax deductions and having a really clean close, then you’re using that information to build your your projection forward. Now, if you build this beautiful plan, this beautiful projection model that goes out three years and you look at all of this stuff and the key players have to sit down for three hours to understand exactly if they’re hitting their KPIs or not, then you’re not it’s not successful.

So it has to be something. My my rule is I like the idea of three to five things for for for for the that that we’re really emphasizing. You might have different ones for different departments, obviously, but they have to be aligned. And the second thing is, I like to say it’s gotta be something that somebody can keep in their head if they’re on target for their bonus or anything like that, or they can calculate down on the back of a napkin and they don’t have to do all this this complex calculations.

I’ll give you example. I was senior vice president for a bank. I had a whole region, I had 180 branches reporting to me. in banks you have to sell, sell a whole bunch of different products that are unrelated somehow, you know, mortgages, credit cards, investments, deposits, investments that you refer to the brokerage, and just two things that that came out of that. Well, I’ll use this for two different examples. The first thing is

I asked my managers, do you know how to maximize your bonus based on the scorecard? Not one of them can tell me exactly what they needed to do to get the maximum on their bonus. Why? Because it was it’s very complex, it was too much stuff and everything else. So what we did was we built a little algorithm on it that showed them how

how each of these different things played into them and then that algorithm gave them the three top things that they could do to maximize their bonus. And what ended up happening is sales increased by 30 or 40% because instead of having to worry about 15 different things and they didn’t understand which one was the most important one, they realized if I just sold three more credit cards, I get an extra two points on my on my score and my bonus goes up. and so ended what ended up happening is they kept looking every week. They kept looking at these three things.

And then as they focused on the number one one, that one dropped off the list. And then there was another one that was number one, and there was another one. So what they ended up is hitting the blended, the blended score because we we converted it into something they could just look at and understand what they had to do. That’s what you need to do here for each of the components, each of the players in this. And then the other thing is alignment. Okay, you have to make sure that what you’re asking production to do.

is aligned with what you’re asking uh sales to do, which is aligned with with what you’re asking finance to do. again, going back to my banking days, they wanted to develop they wanted to to use the branches to solicit clients for their broker services and their wealth management services. But the branches were measured on deposits, okay.

And if they referred a client to to the wealth managements, the budgets the what would happen is wealth management would probably double the amount of deposits that they had, but they took the deposits away from the branch. And so the branch says, Well, why would I refer uh this business over to the wealth management? They get the they get the bonuses, and I have to make up whatever the whatever I lose. I’m better off just staying quiet. So

Well, we looked at that, we realigned it and they got both they got their the the balances that they referred to wealth management plus any increases were counted for both teams. And all of a sudden the wealth management team was hitting like huge targets and the branches were so happy to refer these people over because they knew that if they were somebody that had, you know, twenty thousand dollars in the bank and they referred it to wealth management, it usually turned into fifty.

that 50 counted against their target for bonuses so that’s what you use these things for but it has to be properly aligned and everybody has to know what what they own and what they have to hit and two how does that reflect to the the the the top KPIs that we’re trying to shoot for and the strategy that we’re shooting for uh the company i if they can understand that if the finance if the the the receivables

clerk understands that if he is a little bit more diligent in collecting on on clients that are a little late, that’ll reduce the financing costs and that’ll improve the pro the profitability. If the sales sales guys always know if they sell more they’re gonna they’re gonna do better, but if they sell the right mix, they’re gonna do better. And and and production if if they you know what production always wants a new machine. So they have to understand how the machine

affects affects the overall profitability. So if everybody understands how their how their contribution affects the business, it it it makes makes measuring the KPIs and understanding the KPIs really really easy. I have one of what one uh one of my professors once told me um there was a guy I used to sweep in in Cape Canaveral, you on the Kennedy Center Space Center. And whenever they asked

The guy uh from the Kennedy Space Center, what he did. He didn’t say I’m the janitor and I keep things clean. He says, I’m helping the team put a guy, a man on the moon. Because they sold it to him that way. And he says, What I do is I keep things clean and orderly so the engineers can actually get that guy on the moon. But I am contributing to putting that guy on the moon. So he is part of the target. And if you can align everybody that way, it just makes it so much easier to hit your targets.

So that’s the value of the checklist. The checklist gets you to this sort of alignment, this sort of understanding of your business, and also it allows you to build a projection model or a budget that can respond to the changes and the bidaries that happen in in our our our regular businesses.

And if it’s built this way, you you’re not saying, well, sales went down, sales went up. You can actually go and see the the different elements of it. we’re selling a worse mix or we’re we need to sell more of this. You know, it it becomes actionable items. So that’s why it’s so important to do this process.

Yep. I mean with that being said, we have about four minutes left, not a whole lot of time for QA, but

Well, I’ll ask a quick question. Any other thoughts on well, first I’ll just tell everyone if you need help building building your budget or dealing with some of the other items on the checklist, please do reach out. We’d love to help. and then I have a quick question for Dennis. Besides for keep it really simple, are there other tips when building bonus plans?

it has to be tied to things that the employee actually controls, or indirectly controls. Like for instance, you know, you can build a bonus plan based on sales volumes and and the salespeople, that’s gonna be a bigger part of a of them. But other other departments, if you sell more, the that that that is something that that generally you can build uh a bonus plan around.

But what you have to make sure is as much as you can bonus things that they can control. So the salespeople are directly involved in sales and how they how what are the things they control, the number of calls they make, the closes, the pricings, things like that. If you have uh like an accounting department, how would you bonus them? How do you improve collections on the receivables? And how do you improve the overall cash conversion cycle?

how are we reducing interest things? So it’s things that they control and even production, It’s not so much how much you produce is how effectively do you produce it. So do you produce it with less, are you using less payroll to do it? Or are you are you improving your processes more effectively? Or are you actually running with half the inventory that you needed to run before because you’re you’re producing faster? So everything has to be something that they can control.

Usually, if you’re doing trying to do b budgets across various different departments, I’d like to break the budget out into uh the actual things that they control. And maybe you have a top line budget that is the overall success of the company, which is more like a multiplier of the bottom budget. So you said, look, you know, each one of these things will get you this, but if we hit 110% of sales targets,

Then all everybody’s bonus is 110%. So that’s a way to to get everybody in line with the top number one, two things that we need to do, which is get you know more sales and more ebita, and but at the same token also get bonusing them for their specific contribution to that. And it sounds complicated, but it’s really not that complicated to do if you if you measure out the processes.

For each of the departments and and see where the contributions are. And then all of a sudden people are happier because they they understand their bonus. Again, back of a napkin. They can calculate it. They know I’m going to get a disbonus at the end of the year. And if the company exceeds their targets by this much, I’m going get this much more. Boom. So people are motivated to do it. What about the opposite? You said I contribute to put a man on the moon. Do you put some

bonuses actually on the objective of the company? Yes, you do. just take a a a fictional SaaS company that wants to go for a Series B raise. And and the the the the number one thing that they need to do is they need to increase their ebita so that they can get a good multiple when they try to raise do a second raise. So then then you know what you can do is you have each one

of the of of the of the departments with their own specific bonuses, but then you give an overall I I would tie it as a as a multiplier, bonus. If the company achieves this evitat of five million dollars this year, bonus pool goes up by ten percent, fifteen percent, twenty percent, whatever it is. So everybody is striving for that one, you know, strategic goal. Because I mean every company can probably define the the the the

They’re there’s strategic goals to one or two things that make or break the company. And so if those if they’re that critical, then what you do is you tie everybody’s bonus to that and then their individual bonus underneath it. But what you wanna do is you wanna make sure first you got to do your part of it. So if you meet your part of it, you’re gonna get a bonus. And then if we as a team meet ours, the bonus gets multiplied. But if you don’t meet your part, doesn’t matter if we if we hit our target, you’re not gonna get any bonus.

So the idea is to align with your individual department and what you control and then how that impacts on on the overall performance of the company. So that has everybody pushing in the same direction. Very good. Thank you.

All right. Thank you, Stephanie. Thank you, Dennis. This was really great. Thank you to everyone who joined us.

And we hope to see you at our next webinar. And maybe we’ll do a webinar for how to do a rolling forecast with your budget and use it. That sounds like a great idea. And if anyone has any questions or wants to speak with Dennis or Stephanie, please reach out to them or reach out to me or reach out to Maggie and we will get that going.

Okay. Thank you, Garson. Thank you. Thank you all. Yeah, and if you guys have any any particular things you’re shooting for, you know, you know, you’re looking to raise cash or stuff like that, we can definitely help you. And I think the biggest message that that if you if if you’re interested in talking to us is the idea is we would build something that emphasizes your overall objectives. You know, so if if you’re looking for an exit, looking for financing, looking to raise.

just wanna organically grow, we’ll design it based on whatever the needs are of your company.

I would love to talk to you. Thank you. Agreed. Thank you all.