Financial Concepts for

Successful HR Professionals

Patty Lawrence, CMA

Partner & Consulting CFO

1 ©2017 Turbo Execs LLC

 Outline
 The Business Life Cycle
 Accounting Basics
 Understanding Financial Statements
 Assessing Financial Health
 HR + Accounting = Success!

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 Life Cycle of a Business

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 Life Cycle of a Business

CHALLENGES
• obtaining initial funding
• managing cash reserves
• managing sales expectations
• accounting management
• establishing customer base
• establishing market
presence

• you’ve decided to pursue a business idea

• product and/or services are determined
• need to learn & adjust business model to ensure profitability

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 Life Cycle of a Business

CHALLENGES
• dealing with increasing sales
• dealing with increasing
customers
• increasing market
competition (pricing, etc)
• moving into new markets
• effective management
• adding new
products/services
• expanding existing business
• accounting management

• business consistently generating revenue

• cash flow opens new opportunities
• fine-tune business model
• expand to new markets/channels
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 Life Cycle of a Business

CHALLENGES
• increasing market
competition
• moving into new markets
• adding new
products/services
• expanding existing business
• exit strategy
• accounting management

• dominating market presence

• still growing, but not at an explosive rate
• step back and re-assess growth options

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 Life Cycle of a Business

CHALLENGES
• avert stage by innovating
• rejuvenate product line
• re-evaluate customer needs
& value provided
• protect cash flow
• exit strategy
• accounting management

• business fail here

• decreasing sales, plunging profits
• survival mode, cut losses, exit business
• search for new opportunities & business ventures
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 Life Cycle of a Business

CHALLENGES
• repositioning/rethinking
markets, customer needs &
product offerings
• starting over – YIKES!

• insolvency
• bankruptcy
• business has no value

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 Life Cycle of a Business

CHALLENGES
• re-gaining traction in market
• re-building sales
• re-invigorating employees
• rebuild financial strength &
equity value
• re-formulate exit strategy

• successful turnaround effort

• financial restructuring
• new leadership
• strategic focus
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 Accounting Fundamentals
Who Cares?

 Need an understanding of the basics
 You communicate better with your co‐workers & 
candidates
 Know which gauges are important to watch
 More likely to be in control of your business & career

You Care!

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 Accounting Fundamentals
Bookkeeping:
 Recording, classifying and summarizing financial 
transactions in terms of dollars and their interpretation
Debits & Credits:
 Entries made into the account ledgers to record changes 
in value resulting from business transactions
Transactions:
 Any business event or activity that involves monetary 
value
Accounts:
 Used to record and summarize business transactions

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 Accounting Fundamentals
Assets:
 An economic resource of the business used to produce 
future economic benefits
Liabilities:
 An obligation or debt of an entity
Owner’s Equity:
 Equivalent to the book value of the company

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 Accounting Fundamentals
Accounting Equation:

Assets = Liabilities + Owner’s Equity

A = L + OE

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 Accounting Fundamentals
Revenue:
 Money earned from selling goods or services
Expenses:
 Cost of goods or services that a business buys and uses 
to earn revenue
 Costs of running the business
Net Income or Loss:
 Difference between Revenue and Expenses

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 Accounting Fundamentals
Accounting Equation:

Assets = Liabilities + Owner’s Equity + Revenue ‐ Expenses

Balance Sheet Income Statement

A = L + OE + R ‐ E

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 Accounting Fundamentals

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 Accounting Fundamentals
Cash Basis:
 Revenues are reported on the income statement in the 
period in which the cash is received from customers
 Expenses are reported on the income statement when 
the cash is paid out
Accrual Basis:
 Revenues are reported on the income statement when 
they are earned – which often occurs before the cash is 
received from the customers
 Expenses are reported on the income statement in the 
period when they occur – which is often in a different 
period from when the payment is made

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 Accounting Fundamentals

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 Financial Statements
Income Statement (P&L) ‐ measures the profit 
and loss of a business over a period of time
 Revenue
 Cost of Sales
 Margin/Gross Profit
 Expenses (SG&A, R&D)
 Operating Income
 EBITDA – Earnings before interest, taxes, depreciation, 
amortization
 EBIT – Earnings before interest & taxes
 Net Income/Loss

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 Financial Statements

Interest
Depreciation
Amortization

EBITDA EBIT

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 Financial Statements
Balance Sheet – book value of the company at a 
certain point in time
 Assets
 Liabilities
 Owner’s Equity

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 Financial Statements

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 Financial Statements
Cash Flow – where the money comes from and 
goes to
 Operating Activities
 Investing Activities
 Financing Activities

Cash is King!

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 Financial Statements

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 Financial Statements
Cash Flow vs Profit
 Concerns the movement  Looks only at income and
of money into and out of expenses
the business  Important to ensure you
 Functions as the “gas” in make money on your
your business engine sales
 Where is cash tied up in  Can be profitable, but
your business? cash poor

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 Financial Measures
How long is your cash cycle?

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 Financial Measures
 Common Size Ratios
 Liquidity Ratios
 Operating Ratios
 Solvency Ratios

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 Financial Measures
Common Size Ratios
Calculate each line item as a percentage of the total, 
which makes comparisons more meaningful.

 Common Size Ratios from the Balance Sheet
 Common Size Ratios from the Income Statement

Helpful in identifying trends

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 Financial Measures
Liquidity Ratios
Measure your company’s ability to cover its expenses.

 Current Ratio
 Quick Ratio

Indicators of financial strength

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 Financial Measures
Operating Ratios
Measure the efficiency of your company’s operations.

 Inventory Turnover Ratio
 Inventory Days on Hand
 Accounts Receivable Turnover Ratio
 Accounts Receivable Days on Hand
 Accounts Payable Turnover
 Accounts Payable Days
 Cash Cycle
 Return on Assets

Key indicators to management running the business

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 Financial Measures
Solvency Ratios
Measure the stability of your company and its ability to 
repay debt.

 Debt to Worth Ratio
 Working Capital
 Net Sales to Working Capital
 Z‐Score

Indicators of the company’s viability and financial health

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 Performance Measures
 Manufacturing Productivity (cost of production)
 Pieces per hour
 Yield & Waste
 Machine Throughput
 Sales per labor hour
 Sales Inquiries (customer service department)
 Calls per day
 Conversion rate
 Sales Productivity (sales force)
 Sales per employee
 Sales/wages paid
 Turns (days)
 Inventory
 Receivables

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 Balance Sheet
ACME PRODUCTS INC.
BALANCE SHEET
Fiscal Year Ending December 31, 2014

Assets 2014 2013 2012

Cash 40,443 65,034 26,396
Accounts Receivable 84,686 46,840 30,231
Inventory 17,451 10,000 17,307
Furniture & Equipment 75,770 55,962 0
Vehicles 76,155 21,230 27,216
Accumulated Depreciation (53,795) (29,692) (750)

Total Assets 240,710 169,374 100,400

Liabilities & Shareholder's Equity
Accounts Payable 10,000 19,352 13,897
Deferred Revenue 57,627 10,000 5,000
Payroll Liabilities 15,998 4,958 2,659
Sales Tax Payable 620 922 776
Line of Credit 1,618 22,156 15,325
Long‐Term Debt 110,503 108,912 59,501

Total Liabilities 196,366 166,300 97,158

Shareholder's Equity 44,344 3,074 3,242

Total Liabilities & Shareholder's Equity 240,710 169,374 100,400

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 ACME PRODUCTS INC.
INCOME STATEMENT
Fiscal Year Ending December 31, 2014
Income Statement
2014 2013 2012

Revenue 1,354,589 916,148 777,054

Cost of Goods Sold 614,420 374,454 340,825

Gross Profit 740,169 541,694 436,229

General & Administrative 236,069 98,160 20,983
Selling/Advertising 124,938 84,359 57,661
Compensation/Benefits 195,690 246,760 291,784
Travel 8,885 5,600 4,351
Rent 14,273 21,497 10,913
Insurance 65,849 41,915 28,321
Utilities 19,358 11,466 14,448
Depreciation & Amortization 24,103 28,942 0

Total Operating Expenses 689,165 538,699 428,461

Other Income/(Expense):
Interest Expense (80) (572) (30)
Gain/(Loss) on Investments 0 0 0

Income Before Taxes 51,084 3,567 7,798

Taxes 9,814 3,735 10,590

NET INCOME 41,270 (168) (2,792)
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 Basic Financial Intelligence
Understanding Your Numbers

 You need to know what is a “good” number and what 
is a “bad” number

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 Basic Financial Intelligence
Impacting Your Numbers

 Do you know what to do about a “bad” number?

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 Financial Reports
Departmental Expense Reports
 Measure spending vs benchmarks, typically budget & 
prior year
 Accountability tool

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 Financial Reports
Departmental Expense Reports

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 Roadblocks to Profitability
Owners, managers & employees who don’t know, see, 
hear, trust or care.

 Ensure you have the systems to know
 See where you want to go and have a plan to get 
there
 Hear what your customers, vendors, lenders & 
employees have to say
 Develop an atmosphere of mutual trust
 Determine if your employees care about your 
objectives

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 HR’s Impact
Add Value to the Company’s Bottom Line

 Effective Talent Acquisition & Management  
 Fostering Employee Engagement
 Aligning HR Efforts with Overall Strategy

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 HR’s Impact
Talent Acquisition & Management

 Focus on Attracting & Hiring the Right Talent 
 Hiring Mistakes Are Costly
 Employee Turnover is Expensive
 Invest in Employee Development
 Happy Employees are Priceless! 

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 HR’s Impact
Employee Engagement

 Create a Line of Sight (LOS) for Employees
 Incentive Programs to Motivate Behaviors that 
Positively Impact the Bottom Line
 High Engagement leads to Improved Financial 
Performance
 Communication is Key 

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 HR’s Impact

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 HR’s Impact
Align HR with Overall Strategy
 HR Strategy should be linked with company strategy
 Build HR Strategy around company strategy

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 HR’s Impact
Align HR with Overall Strategy
 Employee performance management goals/objectives 
should incorporate elements of company strategy
 Hiring & retention processes should incorporate 
elements of company strategy
 Development plans should reflect strategic initiatives

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 Thank You!

For more information, contact Patty at:

717.925.3270
patty@TurboExecs.com 
www.TurboExecs.com

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