The KPI - Cash Flow Modeling and Projections (Series: MBA in a Day)

Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.
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The material in this webinar is for informational purposes only. It should not be considered legal,
financial or other professional advice. You should consult with an attorney or other appropriate
professional to determine what may be best for your individual needs. While Financial Poise™
takes reasonable steps to ensure that information it publishes is accurate, Financial Poise™
makes no guaranty in this regard.
While Financial Poise is happy to make this PowerPoint freely available to all, the reader is
cautioned that it was created for use as part of a webinar that featured an extensive verbal
discussion of the topics addressed in the PowerPoint. It was not designed to be read by
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DISCLAIMER
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A SPECIAL THANK YOU…..
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We at Financial Poise would like to extend a special thank you to Professor Emeritus Steven Stralser
Ph.D. of the Thunderbird School of Global Management for generously allowing us to use his
trademarked phrase, MBA In a Day, ™ as the title of this Financial Poise webinar series.
Professor Stralser is also the author of the book, MBA in a Day 2.0, which tackles business fundamentals
in a simple and engaging manner. Please visit Slide 37 to view a special offer from Professor Stralser for
$5.00 of the purchase of his book.
Thank you, Professor Strasler!

MEET THE FACULTY
MODERATOR:
Jonathan Friedland Sugar Felsenthal Grais & Helsinger
PANELISTS:
Jim Bienias AlixPartners
Richard Claywell The Office of J. Richard Claywell
CPA
John Levitske Ankura
Ken Yager Newpoint Advisors Corporation
5

ABOUT THIS WEBINAR
You can chase a lot of financial measures of your business, but nothing stacks up to cash flow. Like a boat
captain on a rough sea, being able to see what is coming at you financially is absolutely invaluable.
Cash flow models are the absolute go-to tool for reviewing companies in distress, yet they are also invaluable to
venture capitalist who must manage long range investments as well as fast growth. This webinar discusses the
basic components of a cash flow model, why it is weekly and not monthly and why 13 weeks is the usual length.
This webinar also discusses what type of data is best for making an efficient and practical cash flow model, as
well as best practices for reporting and pitfalls associated with modeling and balance roll forwards.
This webinar is delivered in Plain English, understandable to you even if you do not have a background in the
subject. It brings you into an engaging, even sometimes humorous, conversation designed to entertain as it
teaches. And, it is specifically designed to be viewed as a stand-alone webinar, meaning that you do not have to
view the other webinars in the series to get a lot out of it.
6

ABOUT THIS SERIES
“If you don’t know your numbers, you don’t know your business.” This is a common refrain that is equally applicable to
attorney and other consultants who work with businesses.
This webinar series is designed for you if you are a startup founder, business owner, executive, investor, attorney or consultant
who, though not a finance or accounting professional, finds herself needing to understand finance and accounting. It won’t make
you an expert but it will give you the tools you need to speak with experts in order to get more out of them and it will provide a
solid foundation on which you can build. Packed with illustrative examples, helpful anecdotes and real-world case studies, this
series teaches you some of the key take things you need to understand about finance and accounting.
As with every Financial Poise Webinar, each episode is delivered in Plain English understandable to investors, business owners,
and executives without much background in these areas, yet is also valuable to attorneys, accountants, and other seasoned
professionals. And, as with every Financial Poise Webinar, each episode brings you into engaging, sometimes humorous,
conversations designed to entertain as it teaches. Each episode in the series is designed to be viewed independently of the other
episodes so that participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
7

Dates shown are premiere dates; all episodes will be available on demand after
their premiere date.
EPISODES IN THIS SERIES
Episode #1 EBITDA and Other Scary Words 3/15/18
Episode #2 How to Read a Balance Sheet – 4/12/18
And Why You Care!
Episode #3 The KPI- Cash Flow Modeling and 5/10/18
Projections
Episode #4 Where Did All My Profits Go? Mastering the 6/07/18
Concept of Working Capital
8

EPISODE #3: The KPI - Cash Flow Modeling and
Projections
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INTRODUCTION TO KEY PERFORMANCE
INDICATORS (“KPI”)
a. What is a Key Performance Indicator?
i. A measurable value that demonstrates how effectively company
achieves key business objectives
ii. An actionable “scorecard” for a business to measure strategies &
achieve goals
iii. Can help businesses manage, control, and achieve desired business
results
iv. May be applied to various facets of business
v. Often used to reflect a business’s most important objectives, not
necessarily every objective
© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™ 10

INTRODUCTION TO KEY PERFORMANCE
INDICATORS (“KPI”) (con’t)
a. What kinds of objectives can KPI be used to measure?
i. Financial goals and successes/failures
ii. Customer metrics
iii. Personnel metrics
iv. Process metrics

KPI AS PART OF OVERALL BUSINESS
STRATEGIES & CONSIDERATIONS
a. KPIs should be incorporated into company’s broader strategy and
understanding of its own performance, and used to measure various
aspects of business not captured by other measurements
b. Other measures of business health and position covered in this series:
i. EBITDA (Earnings Before Interest, Taxes, Depreciation, and
Amortization)
1. Essentially, a company’s net operating income
2. Used to analyze and compare profitability between companies
by eliminating effects of financing and accounting decisions.

STRATEGIES & CONSIDERATIONS (con’t)
a. Other measures of business health and position covered in this series:
i. Balance Sheet Analyses
1. Balance sheet tells management & investors how much money
company has, how much it owes in terms of debts, and resulting
net worth (shareholder equity)
2. Presents a snapshot of the Company’s financial conditions at a
specific point in time

STRATEGIES & CONSIDERATIONS (con’t)
ii. Working Capital
1. Total Current Assets - Total Current Liabilities
2. Positive working capital means that company can pay off its
short-term liabilities. Negative working capital means company
currently is unable to meet its short-term liabilities with its
current assets.

COMMON STEPS TO DEVELOPING &
IMPLEMENTING KPI
a. Set Goals/Objectives
a. Example: increase sales
b. Establish success factors related to goals & objectives
a. Steps to be taken by team members to reach goals
b. Usually takes the form of measurable activity over specified time frame
c. Example: Increase sales leads 10% in first quarter of year

COMMON STEPS TO DEVELOPING &
IMPLEMENTING KPI (con’t)
a. Establish Key Performance Indicators based on success factors
a. Example based on success factor above:
b. KPI related to increasing sales leads: actual % increase or %
decrease in website visits converting to leads for Q1
b. Collect data
c. Calculate results
d. Draw conclusions

DEVELOPING KPI – BEST PRACTICES &
TIPS
a. KPI should be:
i. Well-defined & quantifiable
ii. Communicated to team members
iii. Related to important goals & metrics
iv. Applicable to Line of Business (“LOB”)

TIPS (con’t)
a. Tips for developing KPI
i. Identify appropriate team members to work on KPI
ii. Conduct internal interviews/investigations to develop goals & objectives
iii. SWOT Analysis by team developing KPI
i. Strengths, Weaknesses, Opportunities, Threats
Team may develop SMART goals or objectives to guide KPI:
i. Specific, Measurable, Achievable, Relevant, & Time-bound

TIPS (con’t)
a. Expectations for KPIs
i. KPIs are an evolutionary process
ii. What is important today may not be tomorrow
iii. Perfect data may not exist today
1. Start with elements available, build from there
2. Put timelines and projects together to build better data

TIPS (con’t)
a. Connecting the dots
i. Metrics should track from somewhere and lead to somewhere
ii. High-level metric should also have related, lower level metrics
tracked by individual, and that some plant, department or division
also tracks
iii. Time period should mean something to users of metrics
iv. Metric must be timely

TIPS (con’t)
a. How many KPIs to process
i. Most KPIs end up part of bigger picture or group of KPIs
ii. Humans can only handle or react to so many KPIs
iii. Best rule of thumb: no one person should be responsible for more
than 3 KPIs
iv. Where more than 3 KPIs are necessary, max is often 9 KPIs. Requires
group or multiple responsible parties like a department

KPI EXAMPLES: FINANCIAL METRICS
a. Profit
i. Simple, but highly relevant
ii. Analyze both gross and net profit margins
b. Cost
i. Measure cost effectiveness of business operations to reduce or manage
costs
c. LOB revenue vs. Target
i. Comparison between actual and projected revenues
ii. Tracking discrepancies helps identify how specific departments, or
company as a whole, perform

(con’t)
a. Day Sales Outstanding (“DSO”)
i. (Accounts Receivable ÷Total Credit Sales) × Number of days in time
frame examined
ii. Result = DSO
iii. Indicates company’s ability to collect accounts receivable
iv. Lower number = better collections

KPI EXAMPLES: FINANCIAL METRICS (con’t)
a. Day Payables Outstanding (“DPO”)
i. (Accounts Payable ÷Total Cost of Goods Sold) × Number of days in
time frame examined
ii. Result = DPO
iii. Indicates company’s ability to gain accounts payable credit
iv. Bigger number = better vendor credit

(con’t)
a. Days Inventory Outstanding (“DIO”)
i. (Inventory ÷Total Cost of Goods Sold) × Number of days in time
frame examined
ii. Result = DIO
iii. Indicates company’s need to hold inventory
iv. Lower number = better inventory turnover

KPI EXAMPLES: CASH CYCLE
(AGGREGATING FINANCIAL METRICS)
a. Cash Cycle
i. Measure of working capital converted to a day-based equation
ii. DPO - DSO - DIO = Cash Cycle
iii. Most companies have negative Cash Cycle number
iv. Cash Cycle result indicates gap in total working capital by days, and
how much company needs from outside sources of capital

(con’t)
a. Sales by Region
i. Can be used to compare sales across regions, identify high performers
and low performers, and may provide insight as to how low performers
can improve in specific regions
b. LOB Expenses vs. Budget
i. Comparison of actual overhead costs against budget
ii. Aids in developing future budgets

KPI EXAMPLES: CUSTOMER METRICS
a. Customer Lifetime Value (“CLV”)
a. Determination of optimal customers
b. Examines value of long-time customers to company to narrow targets
for future customers likely to form long-term relationships with
company
b. Customer Acquisition Cost (“CAC”)
a. Total Acquisition Costs ÷ No. New Customers over specific time frame
b. Result = CAC
c. Important metric to determine effectiveness of marketing campaigns
c. Customer Satisfaction & Retention

(con’t)
a. Net Promoter Score (“NPS”)
i. Measures likelihood customers will refer others to company
ii. May be determined by quarterly customer satisfaction survey
incorporating question relating to likelihood of referring
contacts/friends to the company
b. Number of Customers
i. Measuring gains and losses of total customers aids determining ability
to meet customer needs

(con’t)
c. Churn Rate
i. Measures % of customers that fail to make repeat purchases or
discontinue service during specific period
ii. (No. customers lost during Period) ÷ (No. customers at beginning of
Period) = (Customer Churn Rate).
d. Contact volume by channel
i. Tracks customer support requests by phone, email, web portal, etc. to
determine customers’ preferred method of seeking support

KPI EXAMPLES: PROCESS METRICS
a. Customer Support Tickets
i. Analysis of number of customer support tickets opened and
resolved in specified time period
ii. Measures customer service capabilities, strengths, & weaknesses
b. Percentage of Product Defects
i. No. defective units during time period ÷ total units produced
during time period
ii. Lower is better!
iii. Can identify process issues if number is high

KPI EXAMPLES: PROCESS METRICS (con’t)
a. LOB Efficiency Measure
i. Measured differently depending on line of business
Example: manufacturing
i. No. units produced per hour measured against % time plant is
running

KPI EXAMPLES: PERSONNEL METRICS
a. Employee Turnover Rate (“ETR”)
i. No. Employees exiting during time period ÷ average no. employees
ii. Indicates company’s ability to retain talent, determine steps to reducing
turnover for future if ETR is high
b. Percentage response to open positions
i. High % of qualified applicants may indicate desirability of company to
job seekers
ii. Low % may indicate issues with employee benefits offerings, salary, etc.
c. Employee satisfaction
i. Internal employee satisfaction surveys may indicate areas for
improvement or continuance/discontinuance of employee programs or
other benefits

KPI EXAMPLES: PERSONNEL METRICS
(con’t)
a. Retirement rate
a. Key to developing strategic workforce plan with aging workforce
b. High retirement rates aid in developing hiring strategies
b. Internal promotion vs. external hires
a. Measurement of internal promotion vs. external hires when vacancies
open
b. Effective means of building succession plan

COMMON KPI PITFALLS
a. Adopting commonly-held business practices instead of developing those
specific to a business
b. Recency bias – tending to give weight to most recent information
gathered/learned instead of taking broader history into account

COMMON KPI PITFALLS (con’t)
a. Reliance on intuition/anecdotal evidence as opposed to measured data
b. Confusing lagging indicators (easily measured outputs) with leading
indicators (hard-to-measure inputs)

ABOUT THE FACULTY
Jonathan Friedland is a Partner with Sugar Felsenthal Grais & Helsinger, LLP, with offices in Chicago and New York. Jonathan regularly
advises private funds in their M&A activity and private companies in their day-to-day affairs. Jonathan has extensive experience in guiding
companies and their boards through a variety of challenging situations, including in Chapter 11 and other insolvency regimes.
Jonathan graduated from the SUNY Albany, magna cum laude, in 1991 (after three years of study) and from the University of
Pennsylvania Law School in 1994. He clerked for a federal judge before entering private practice. He was an Adjunct Professor of
Strategic Management at the University of Chicago’s Graduate School of Business for several years and was the 2006 Clayton Center for
Entrepreneurial Law Visiting Professor of Business Law at the University of Tennessee College of Law. Jonathan has been profiled,
interviewed, and/or quoted in numerous publications, including Buyouts Magazine; Smart Business Magazine; The M&A Journal; Inside
Counsel; LAW360; BusinessWeek.com; The Bankruptcy Strategist; Dow Jones Daily Bankruptcy Review; Bankruptcy Court Decisions;
Dow Jones LBO Wire; and The Daily Deal. Jonathan is also lead author and editor of several significant treatises, several chapters in
other treatises, and hundreds of articles on law and business. Jonathan holds the highest possible rating from Martindale-Hubbell (AV®
Preeminent™) and AVVO (10/10), has been repeatedly recognized as an Illinois “superlawyer” in multiple areas of practice, including
Business/Corporate Law and Bankruptcy & Creditor/Debtor Rights, has been named several times as a “Leading Lawyer” by Leading
Lawyers Magazine, and has received several other similar distinctions. He is also the founder of DailyDAC/Financial Poise.
37© 2018 by DailyDAC, LLC d/b/a Financial Poise Webinars™
JONATHAN FRIEDLAND
jfriedland@sfgh.com

ABOUT THE FACULTY
JIM BIENIAS
jbienias@alixpartners.com
Jim leverages more than 15 years of experience in working with underperforming and distressed large
and middle-market companies to help navigate a company’s most challenging situations. Jim’s clients
benefit from his experience in working with all levels of management, including managers, C-level
executives and boards of directors as well as external stakeholders such as banks and private equity
investors. Jim excels at turning data into information and using that information to provide cash flow
and financial forecasts. Previously, he was with FGMK as a managing director. Jim has an MBA from
the University of Michigan’s Ross School of Business and is a Certified Treasury Advisors, a Certified
Insolvency and Restructuring Advisor and a Certified Turnaround Professional.

ABOUT THE FACULTY
Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in
Business Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified
Valuation Specialist, Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst
in Financial Forensics, Certified in Fraud Deterrence, Accredited in Business Appraisal Review. Richard
has been valuing closely held companies since 1985. Richard’s practice is restricted to business valuation,
economic damages, profit enhancement and exit planning.
Richard has been an instructor for the National Association of Certified Valuation Analysts for many years,
has been an instructor for the Internal Revenue Service and the International Association of Consultants
Valuators and Analysts (IACVA). Richard is currently the Director of Education for the IACVA and is
responsible for the business valuations materials being taught in 55 countries. Richard has taught business
valuation or economic damage courses in China, Korea, Taiwan.
Richard has performed over 1,000 business valuations since 1985. Richard has testified in Texas County
Court, Texas State Court, Bankruptcy Court and Texas State Courts. Richard has given testimony in
economic damages (lost profits), shareholder disputes, personal injury, wrongful termination and divorce.
RICHARD CLAYWELL
richard@biz-valuation.com

ABOUT THE FACULTY
John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial disputes. He has served as a
senior advisor to companies, owners, executives, and legal counsel in business disputes, shareholder disputes, and M&A transactions
regarding issues of valuation, finance, damages, and accounting. John is based in Chicago.
With over two decades of Big Four public accounting and international consulting experience, John is seasoned in business valuation,
financial analysis, economic damage quantification, forensic accounting, retrospective solvency analysis, and post-merger & acquisition
accounting calculations. He handles appraisals of healthy and distressed companies for buyouts of shareholders and creditors, transaction
planning, estate and gift taxation, financial accounting, bankruptcy proceedings, and litigation disputes.
John has provided consulting and expert witness testimony services and has served as a neutral party in arbitration and mediation. He has
testified as an expert witness in the US and Europe in depositions, hearings, bench and jury court trials, and domestic and international
arbitration (ICC, SCC, AAA, JAMS, FINRA, and ad hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered
binding decisions on disputed matters. He is co-author of the “Managing Post-Merger & Acquisition Purchase Price Disputes” chapter in
the American Bar Association’s 2016 Alternative Dispute Resolution Handbook for Business Lawyers.
JOHN LEVITSKE
john.levitske@ankura.com

ABOUT THE FACULTY
KEN YAGER
KYager@newpointadvisors.us
Ken Yager is has nearly two decades of executive business leadership experience. As Financial Advisor or in CRO, CEO and CFO roles,
Mr. Yager regularly takes on profit and loss and risk-management responsibility for cash-constrained companies in growth, leveraged-
buyout and turnaround situations. He also has successfully worked on implementing dozens of initiatives involving, operations and project
management, team building, marketing, and sales and joint-venture management. He is a fierce advocate for stakeholder rights and
pragmatic transparency.
Ken has worked with clients in a variety of industries in over 60 engagements. He focuses on business services industries including media,
information services, contact centers and field services.
Ken earned a Bachelor’s degree in Management with majors in Finance and Accounting from Tulane University, A.B. Freeman School
of Business, and received a Master of Management degree from J.L. Kellogg Graduate School of Management. He later served as
President of the Kellogg Alumni Club. Ken is a member of the Chicago/Midwest chapter of the Turnaround Management Association
(TMA) and is on the International Board as the Vice President of Education and chairs the Education Oversight Committee. He is also a
member of The Commercial Finance Association (CFA). Ken is also a member of the Association for Corporate Growth (ACG),
National Association of Corporate Directors (NACD) and the Media Financial Management (MFM) Association.

The material in this presentation is for general educational purposes only. It has been prepared
primarily for attorneys and accountants for use in the pursuit of their continuing legal education and
continuing professional education.
While Financial Poise is happy to make this PowerPoint freely available to all, the reader is
cautioned that it was created for use as part of a webinar that featured an extensive verbal discussion
of the topics addressed in the PowerPoint. It was not designed to be read by itself. Financial Poise
webinars can be purchased at www.financialpoise.com You may also receive offers for free webinars
by subscribing to Financial Poise's DACyak, a free weekly newsletter.
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