I was invited to present at a self-employment in the arts conference where my audience was artists, musicians, and other self-employed artist types in a variety of fields.  My topic was “Financials and the Arts”.  I have experience presenting on financial literacy to executive directors of non-profits, so I had a sense of the relationship between understanding the mission of an organization and understanding the financials of an organization.  These artists had a very strong sense of mission, not much of finance.   I began by explaining the three financial statements.  The profit and loss statement is like your paycheck.  If you worked 40 hours a week at $10 an hour your take home pay was not $400, it was less taxes, insurances, and other deductions.  This is how the profit and loss statement works.  Your revenue minus your expenses and then you get to take home the difference in the form of profits. Your cash flow statement works like your personal debt card.  If you have money in your account, you can draw funds from your debt card or pay bills with it.  You don’t have to put money into your debt card account every day in order to use […]

Over the past months, I have had conversations with business owners regarding cash flow issues. Today’s post-pandemic business environment is tough due to several issues, none as relevant as the prime rate increases over the past years. As the cost of money increases, customers are putting off larger purchases, such as remodeling, and major repairs to their homes. These industries are struggling more than most when it comes to cash flow. I see many businesses turning their cash into accounts receivables or inventory as business slows. Not making the needed adjustments in purchases is causing inventory to increase. This is creating “frozen cash,” cash tied up in larger inventories as business decreases and purchasing habits are slow to react. Another major contributor to “frozen cash” is the increase in accounts receivable (A/R). Customers are doing what many businesses do when cash is in short supply, they are pushing out their household account payables A/P, not paying their bills as fast as they normally pay, resulting in more “frozen cash” for their service providers as A/R increases. This puts pressure on the business to increase its efforts to collect the outstanding A/R to maintain proper working levels of cash flow. In […]

The Boss asked me to help him understand his financials better. I asked what his main issue was, and he stated that he thought the profits were too low. We had developed a budget earlier in the year and he was comparing the actual financial reports to the budget. We knew the budget was not perfect as it was our first budget we wrote together and the first budget The Boss had ever written for his company. After reviewing the profit and loss, The Boss pointed out the net income was running behind budget for the YTD. We began to discuss what could be causing this effect on the P&L. I had The Boss initiate a job costing SOP and The Boss said he had been doing this religiously with good results. So why was the profit not showing up on the financial statements? After calculating some percentages, we could estimate what the dollars should be for the cost of goods sold (COGS) and overhead. We reviewed the balance sheet and calculated purchases versus the COGS on the P&L. Here we found the beginning of the problem Purchases versus COGS according to GAAP. I explained this as simply as I could […]

I recently took on a new client and in our first meeting, The Boss expressed how frustrated he was with his bank. I asked, “How so?” The Boss said their line-of-credit (LOC) was too small and every time he went to the bank asking to increase his LOC, they routinely asked for a profit and loss statement and a balance sheet. Soon afterward, the bank refused his request. I asked The Boss if he ever asked his banker for a reason, and he said “No, he was too frustrated”. I looked over his profit and loss statement (P&L) and asked to sit with The Boss to answer some questions I had. Frankly, the P&L was a mess. The Boss was a great technician but a poor bookkeeper. He tried his best to input the information to keep the P&L up to date but his day-to-day duties often won out over accurately inputting financial data. We spent hours trying to organize the P&L according to General Accepted Accounting Principles (GAAP), a term The Boss did not understand until we started working together. We isolated his profit centers and calculated a gross profit per center. We separated the direct costs and the […]

I was invited to present at a self-employment in the arts conference where my audience was artists, musicians, and other self-employed artist types. My topic was “Financials and the Arts”. I have experience presenting financial literacy to executive directors of nonprofits, so I had a sense of the relationship between understanding the mission of an organization and understanding the financials of an organization. These artists had a very strong sense of mission, but not much of finance. I began by explaining the three financial statements. The profit and loss statement is like your paycheck. If you worked 40 hours a week at $10 an hour, your take-home pay was not $400. It was less due to taxes, insurances, and other deductions. This is how the profit and loss statement works. Your revenue minus your expenses and then you get to take home the difference in the form of profits. Your cash flow statement works like your personal debit card. If you have money in your account, you can draw funds from your debit card or pay bills with it. You don’t have to put money into your debit card account every day in order to use it every day. When […]

I was approached by one of my competitors who thought I would be interested in buying his business.  Anyone who has ever had this happens knows that a business owner just doesn’t want to sell their business, something is not working well, and they want out.  They may not have a relative or business partner to buy their company so they go soliciting potential buyers so they can exit the company.   They are looking for a succession plan! I agreed to do a walkthrough of his company.  If you would ask my wife, she would not have been surprised, as she often points out to me it was not “either this or that”, most likely, I would see things as “this and that” and away we go!  As I asked questions and walked through his company, I notice his breakroom floor.  It had a very nice-looking new ceramic tile floor.  Now anyone who has ever worked in a manufacturing company would tell you that having a ceramic floor in the breakroom was an anomaly.  So, I had to ask why? The owner said that he did a job for a tile company, and the tile company wanted to barter […]

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Back in the day, as I am told I say way too often, a full-blown business plan would be necessary to get funding, and some may say to have a successful business.  Today, times have changed and that 20-plus page business plan has become somewhat obsolete. What has replaced it? A three-year financial projection with eight to ten pages describing how The Boss is going to execute to achieve the Pro-forma numbers.  One of my past careers, I worked in an entrepreneurship center where we helped entrepreneurs launched approximately 170 new businesses over four years. What I saw were many of these new businesses going out of business in about eighteen to twenty-four months after launching.  After closer investigation we noted that the new business could not cash flow after the start-up funding was used up, causing the businesses to fail. That old adage is true, “You can have profits without cash flow and go out of business, but you can have cash flow without profits and fight another day!” If you want to know your business intimately, create a three-year operating budget with a very detailed first-year and two following years of projections.  At the end of the first […]

Step #1 – You are a business first! When I first begin working with a new business, I often hear business owners say they are printers, landscapers, mechanics, etc.  The first step in changing a culture and growing a business is to change the way the business owner sees their company. You are a business owner who is first running a business that happens to do printing, you are a business owner who is first running a business that happens to do landscaping, and you are a business owner who is first running a business that happens to repair automobiles.  It’s a new discipline for most small to midsize business owners who relate the business to their personal talents. One of the businesses I was a partner in was a sign company.  We built the types of signs you see on the street corners and on the fronts of buildings.  We had a talented workforce, but the business was stagnant. In order for us to grow the business, we had to change the way we thought of ourselves.  Most all of our employees see our business as a sign company building signs. The business had the ability to be much […]