“Running It By The Numbers”

“Running It By The Numbers” Hilton Smith Waterfront Hospitality LLC Waterways Cruises & Events The Lakeside Event Center CaterArts Catering

Running It By The Numbers • 30 Minutes to tell you what it took me 42 years OJT to learn after I got an MBA! • Your take away – How to drill down into your numbers to make good management decisions • What numbers matter? • How do you generate those numbers? • How do you interpret them? • What do you do next? • Waterfront Hospitality LLC as an example – 2006 & 2007

Drilling Down – Level 1Financial Data • What we see at the beginning of every month – Our P & L • This month’s & this year’s numbers • This is Level 1 information • Prepared by your accounting staff • These numbers are raw financial data • What do they tell you? • Not much? • Nothing?

Drilling Down – Level 2Financial Information • Comparison of last month or last year to this year • This is Level 2 information • Prepared by your Controller • These numbers are financial information • What do they tell you? • We did better or worse than we did in the last comparative period • Not much more

Drill Down – Level 3Management Information • You begin to “mine” Management Information when you measure change • Amount of Change • Direction of Change • Rate of Change • You begin to see what happened • Before you can understand whyit happened you need more tools

Drill Down – Level 4Decision Information = Derivative Numbers • Obtaining Decision Information is about • Measuring the effects of change • Tracking change over time • Measuring relationships of related numbers one to another – calculating Operating Ratios and establishing Operating Metrics • Decision Information is about separating the “dynamic” from the “static” • Decision Information is obtained from “mining” Derivative Numbers • Only Derivative Numbers mean anything • The rest are bragging rights at the bar

Decision Information – Level 4 (continued)Grind the Numbers • Do the math – create the numbers • Measure the change • Measure the direction of the change • Measure the rate of change • Compare the changes from period to period • Calculate Operating Ratios • Establish Operating Metrics – the “goal posts” • Make the numbers “live” • Put them in pictures – table, graphs & charts

A Sidebar12 Month Moving Average(12 MMA) • What are 12 MMA numbers? • What do 12 MMA numbers show that month and year-to-date (YTD) financial data don’t show? • They eliminate seasonally • They are the frames in a video rather than a snapshot • If you look at them monthly in graphical form they show you important trends. • Month-to-month (MTM) over a period of years they are a movie of your business

Waterways Gross Sales – 12 MMA

Waterways Gross Margin– 12 MMA

Waterways Operating Expenses – 12 MMA

Waterways EBITDA – 12 MMA

Waterfront Hospitality2006 & 2007 • Get all of the data • Generate the information from the data • Comparative Operating Statements • Three formats • YTD year-to year comparison – 2006 Vs 2007 • YTD comparison – 2007 Actual Vs Budget • 12 MMA comparison – 2006 This Month Vs 2007 This Month

Waterfront Hospitality2006 & 2007 (continued) • Do the math • What’s the magnitude of the change? • In dollars • In percentages • What’s the direction of the change? • How are the related numbers moving?

Waterfront HospitalityGraph & Chart the Numbers

Waterfront HospitalityWhat Do We Know Now? • We know the magnitude of the numbers • We know how much they changed • We know the direction of the change • We know the rate of change • We know what’s working • We know what’s not working • We now know what we have to work on • We know where to concentrate our limited management resources

Waterfront HospitalityAugust 2007 • What management decisions can we make from the numbers? • Where to concentrate efforts to increase revenues • What product/service adjustments are needed • Do we need to coach or terminate an employee • Whether or not to pay a bonus • Where to concentrate marketing or sales effort • Where to employ IT enhancements to save labor dollars

Waterfront HospitalityThe Decisions We Did Make • Focus on Revenue By Customer Type (Market) • Allocate Customer Portfolios to each member of the Sales Team • Develop our 2008 Marketing Plan by Market rather than by vessel • Develop our 2008 Sales Plan by Market rather than by salesperson • Shift day-to-day responsibilities of CEO & COO • Terminate the Director of Event Services (DOES) and replace him with 2 Senior Event Managers (SEM) – more “boots on the ground”; better crew recruiting; more effective crew training; less expensive

Waterfront HospitalityThe Decisions We Did Make(continued) • Terminate the existing maintenance staff; recruit and hire a new staff • Focus on reducing Food Cost – menu simplification & restructuring; up charges for premium products; increased pricing of selected items • Focus on Food Labor – break down of prep and service costs; recruit separate galley chef crew form culinary schools • Focus on Enhancement Sales - COGS & GM; re-pricing • New plan for Public Cruise activities • Develop a yardstick for working capital needs.

Summary • Accounting provides the raw numbers for decision making • Drilling down into the Level 3 and Level 4 numbers sets you up for seeing what’s working & what isn’t working • Graphing & Charting makes information come alive • Derivative Numbers tell you what to work on and helps us to prioritize our actions

The Final Word • The simple business model & success formula • Drive revenues up • Maintain or increase GM as a % of Sales • Increase Overhead slower than GM is increasing • The result = dramatically increased profits, cash flow and cash; Operating Leverage • The reality • It’s hard to do three things at once!

Thanks for Listening! I hope you got a good “take away” idea you can put to good use next week! Hilton Smith Waterfront Hospitality LLC Waterways Cruises & Events The Lakeside Event Center CaterArts Catering 206-999-2500 hiltonmail@aol.com

“Running It By The Numbers”