ACCOUNTING

Budget Blueprint

To determine if Mountain Sales Services could buy big assets without crippling cash flow, CFO Kirk LaPoure turned to BallPark Business Valuation 1.0, an off-the-shelf software product.
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Finance

Problem: Buying big assets without crippling cash flow
Solution: Business-valuation software
Payoff: Worry-proof purchases

Kirk LaPoure can't help asking, "Is this necessary?" whenever he has to write a fat check. As the chief financial officer of a maturing business, LaPoure lists protecting profitability and cash flow as his two top priorities. So he makes it a point to question every expenditure. That is, after all, what CFOs are paid to do.

LaPoure works for Mountain Sales & Service Inc., a $10-million restaurant-equipment wholesaler in Denver. For the past three years he has directed such questions to CEO and founder Richard Muckler. But last year, when a new set of growth challenges confronted the company, he began to ask those questions with even greater concern.

Almost overnight, it seemed, the company's accounting needs had outpaced the capabilities of its systems. The accounting software couldn't supply the reports LaPoure needed in order to follow steadily expanding sales, customer lists, and product lines. How useful was a report that could detail only product categories with no specific information on individual items? Worse, the software wasn't Y2K compliant, and it ran on hardware that had long needed upgrading. Furthermore, sales of ovens, ice machines, and other products were growing so fast that Mountain needed to buy new vans to make deliveries and accommodate its service business. In sum, LaPoure knew the company needed Sage MAS 90 accounting software, 13 new PCs, and two new vans.

But before he issued a single check, he'd need Muckler's approval. And there was one big thing that Muckler would want to know: if the company was to make large expenditures, would Mountain's value still be congruent with the CEO's growth projections for the business? LaPoure had lots of numbers to crunch, and not a lot of time.

LaPoure turned to an off-the-shelf software product called BallPark Business Valuation 1.0, from BulletProof Business Plans (800-656-5443, $29.95). Following BallPark's fill-in-the-blanks format, he plugged in Muckler's anticipated ROI, the company's fixed costs, and such variables as sales, profits, cost of new assets, and value of current assets. In response, BallPark generated answers to such questions as "If the company had to support Muckler's forecasted ROI, could it make the purchases without damaging cash flow?"

Working with BallPark, it took LaPoure about 10 minutes to conclude that there was no way Mountain could pay cash for the PCs ($20,000), the software ($20,000), and the vans ($40,000). Debt financing, however, would work. Paying approximately $1,100 a month on a five-year debt-financing plan for the vans and $1,000 a month over four years for the hardware and software, the company could sustain profits and sales that would support Muckler's valuation requirements. "Now we have a comfort level that the purchases won't be high demand on our cash flow," LaPoure says. Instead of struggling to pull everything together on a spreadsheet, he adds, BallPark "saves us so much time and makes it much easier to do all those what-ifs."

Last updated: Sep 15, 1999




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