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Gross Cash Burn Rate = Current cash balance / monthly operating expenses Business as usual is not always less hectic, but it is a time of consistent performance It also happens to be a great time to purposefully move the organization toward greater profitability and address existing pain points Gross Margin Rate is a common Metric to manage by, but alone it can disincentivize capital investment and leave general expenses unchecked Keeping an eye on the EBITDA rate often provides a better picture of profitability

EBITDA Rate = Earnings Before Interest, Taxes, Depreciation & Amortization / Revenue Growth is about increasing market share and sales volume and sometimes sacrificing a measure of profitability to do so It is important to plan for profitability while managing growth, but equally important to ensure that growth is not throttled by cash shortages As revenues grow, so do accounts receivable, accounts payable, and inventory balances For many businesses cash is spent, sales follow, and cash receipts trail further behind Sales growth increases current cash outflows but allows cash collections to lag at the previous month’s sales levels This can stress formerly healthy cash levels and downright throttle the operations of organizations that run lean cash balances

Cash Conversion Cycle = Inventory Days + Accounts Receivable Days – Accounts Payable Days Declines happen, and there are several KPIs that can be important to decision-making Measuring the rates of sales and profitability decline can inform management as to just how aggressively inventories and costs should be scaled back Monitoring the Breakeven Margin of Safety will indicate just how much of a hit sales can take before it becomes painful, and Net Cash Burn Rate will indicate just how long the organization can sustain losses

Breakeven Margin of Safety = Revenue – Breakeven Sales Volume An owner winddown may also be the business’s winddown but could be the owner transitioning away from the primary management of the business as it continues Strategies can be varied, and the operations behind the financial statements may be fundamentally changing In the case of an operational winddown or transition, liquidity can become a major concern as inventories discount or are rendered obsolete, and receivables and liabilities resolve or transition to new norms Consider using a focused liquidity ratio such as the Quick Ratio or Operating Cash Flow to Current Liabilities ratio

Operating Cash Flow to Current Liabilities = Annualized Operating Cash Flow / Total Current Liabilities How much money would it take make you walk away from your business right now? How much money is your business worth? Most small business owners do not earnestly consider how they plan to exit their business until they are ready and itching to move on to another part of their lives For the best outcomes, begin planning for exit at least five to ten years in advance Periodic valuations can help ground that planning and a KPI such as Economic Profit can help you keep score of value building progress

Economic Profit = Annualized NOPAT – (Total Invested Capital * WACC/100) NOPAT = Net Operating Profit After Tax WAAC = Weighted Average Cost of Capital Thrive is Huberty’s new, innovative platform that keeps clients informed and up-to-date with their financial information Thrive by Huberty is designed to analyze data, create real-time collaboration with advisors, and coach business owners to future success

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