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Dollars and Sense

November 7, 2011 By Leave a Comment

 

Financial Analysis may sound like a daunting task to some people, especially if the subjects have never really been explained to them in a common sense way.  I had an opportunity to teach a Finance student of mine what I like to call Common Sense Financial Analysis in 20 hours, and within that 20 hours, I’m confident he learned more than in four years at our prestigious local University.

Essentially we reviewed the three critical financial statements, the components of each, why those components were important, when a company reported, to whom they reported to, and essentially, what information you could get out of the numbers you were given.   Sure there are a million ratios and terms to make things sound fancy (like the beloved weighted average cost of capital) but common sense is where you start, and ironically, once you understand basics, the rest comes relatively easy.

 

Boiled down Financial Analysis:

 

An Income Statement tells you whether or not a company (through selling its goods or services) is making money or not.  Extended analysis will shed light on revenue trends, expense management, margins, consistency etc, but essentially it’s called a Profit and Loss statement because that’s exactly what it tells you:  during a period of time, did this company experience a profit or a loss.

 

A Balance Sheet tells you at any given point in time, what a company owns, what it owes, and the difference, which is what it’s worth.    If your house was on a balance sheet, what you own (your asset) is worth say $100k.  What you owe (your liability) is $80k, and what you own (your equity) is $20k.  What you own, less what you owe, is what you are worth.   Assets- Liabilities = Equity.  Or on a balance sheet Assets = Liabilities + Equity.   They must equal so the sheet balances, hence the name.   Extended ratios from the balance sheet will tell you if a company is too leveraged (borrowing more than they should), has a good cash cycle (A/R and A/P analysis), Liquidity (can they pay their short term bills) and insights into ownership structures (is the company financed through stock, borrowing, owners capital etc).

 

Our third statement, a Cash Flow Statement essentially tells you, again over a period of time, what inflows (sources) of cash you had over that time, and what outflows (uses) of cash you had.  The interesting thing about a cash flow statement is it is created by the change of the balance sheet from one period to the next.  So, changes in what you own (buying or selling) would be uses or sources of cash.  Changes in what you owe (borrowing or paying off) would also be sources or uses of cash.  Changes in equity (selling stock, buying stock, and investing capital for example) are also sources and uses of cash.

 

As you can see, this is not rocket science, but you would be amazed at the number of financial and non financial people that can’t make these simple connections to their work and businesses.  The really cool thing about business financial statements is that they can be applied at a personal level as well.  You can calculate your personal ‘profit or loss’ for a given year, your personal net worth on your balance sheet, and your personal cash flow statement (changes in your balance sheet) over time.

 

Not understanding your financials is like driving with your eyes closed.  Sure you may be able to make it down the street, but I wouldn’t recommend the highway.


 

 

 

 

Filed Under: Business Strategies, Entrepreneurial Skills, Free Warrior Blog, Guest Blog, On Trend, On Track, Productivity Systems Tagged With: , , , , , , , , , , , ,

The Magic of One Good Idea

November 6, 2011 By Leave a Comment

I came across this story on the internet, and it is a wonderful example of how one single good idea can have an immense impact for a business.  If you are still thinking ‘inside the box’, this story will inspire you to climb out! 

One of the successful businessmen I sought out at church for advice in starting my own business – is a 90 year-old gentleman named Floyd. Some 20 years ago, he and his nephew, Tom started a small manufacturing company here in town that makes kitchen blenders.

To test their blender’s durability – Tom would often ram a broom handle into the glass container – to see if it would “blend”. This little quirk of his would become significant later.

For 15 years or so, they had moderate success locally selling their blenders. Then, 5 years ago – along came an internet phenomenon, called “YouTube”. The marketing department suggested Tom & Floyd make their own commercials for YouTube.

Someone decided the image of Tom “blending” a broom handle might be catchy – so in a small room at the factory, they filmed Tom and his broom. They had him blend other objects – like a Chuck Norris action figure, a gun, a live video camera, an iPod . . . Their commercials went “viral”. Do a YouTube search for “Will It Blend?” and be prepared to laugh out loud.

Their YouTube commercials get tens of millions of views EACH. Last year, their little company, Blendtec did more than $50 million dollars in business. Tom & Floyd are recognized all over the world and have appeared on TV shows from Good Morning America to The Tonight Show.

It all starts with one good idea.   What’s yours?

Filed Under: Artistic Creativity, Entrepreneurial Skills, Free Warrior Blog, Guest Blog, Things that make you go HMMM... Tagged With: , , , , , , , , , , , , , , , ,

My Father Gave Me a Silver Dollar Mind Set

September 28, 2011 By 1 Comment

When I was seven, my father launched my career as an entrepreneur. He owned a store that sold office equipment in New York City right across the street from the Empire State building. On days when I wasn’t in school he took me to work with him.

Setting out before dawn we left our suburban home for the city. Upon arriving I’d watch as he lifted the big heavy gates, turn off the alarm system, and turn on the lights. The day had begun!

He looked serious at the start of the day. Sometimes I thought he looked worried. However today I know it was focus. He had a job to do and he was intent on doing it.

In a little while the employees would file in. Repair men, truck drivers, sales people, and office staff. There was the usual banter of people getting their day started.  I was fascinated with the complexity of the city. Trucks, noise, smells, skyscrapers, and people… lots of people!

Back then my jobs consisted of filing, adding numbers, typing invoices, running the postage machine, and greeting customers. I was eager to learn and my dad’s employees enjoyed teaching me. It was exciting and the day flew by.

At the end of the day when everyone had gone, I’d walk by my father’s side as he went through the building turning off lights and doing his last check on things. Finally, we’d end up in the store where he would open the cash register, thank me for doing a good job, and hand me three silver dollars.

Many years later I realized the profound meaning of those silver dollars. At the tender age of seven I learned a set of values that have guided me in everything I’ve done. I learned that work was fun because there was so much to learn and master. I learned that work was meaningful because I did things that needed to be done.

I learned that if I did a good job I got paid. I received a great lesson about how money and values interact. And I learned that if I saved money I had control. I could make decisions about what I wanted without asking for anyone’s help or permission. That’s my silver dollar mind set!

Thank you Dad!

Filed Under: Entrepreneurial Skills, Laurie's Blog, The Warrior Mindset

When the Student is Ready, the Teacher Appears

August 23, 2011 By 1 Comment

We’ve heard it; we’ve lived it, and know its truth. Learning a new skill requires desire, perseverance and practice. It also requires the right teacher.

I was fortunate early in my life to study the flute with Robert Morris from the NY Philharmonic. He patiently guided my musical development so that to this day, I still enjoy playing my flute.

In my 30′s I wanted to learn to play golf. Before I even picked up a golf club I went to a PGA pro. I knew how hard it was to unlearn bad habits, and I didn’t want any. I practiced at the range and when I wasn’t there, I was practicing in my living room. The practice, the visualization and the lessons paid off. In three years I had an 18 handicap – and no bad habits to unlearn!

Last week I attended a Professional Speaking Bootcamp. The facilitator was a well known speaking coach. After demonstrating some great speaking techniques, she asked for volunteers. My hand shot up and before I knew it I was in front of 30 people telling my story.

I took the opportunity to be bold: to tell a very personal story that’s been burning to be told. In 5 minutes of coaching, she helped me unlock the power of my story. Now I am ready to use it in presentations to make a powerful point come alive to my audience!

I’ll close by saying perhaps my greatest teacher was my father who from the time I was 6, introduced me to the world of business and remained my mentor, confidant and guide for the rest of my life.

So in short, when you are ready to learn you are ready for a teacher. With a clear goal in mind, choose the best teacher to guide your journey. Trust that teacher and apply yourself with disciplined behaviors and repetition. Your level of achievement will reflect your level of commitment, the effort you put into practice and repetition, and the quality of the teacher/mentor/coach you choose to be your guide.

Filed Under: Entrepreneurial Skills, Laurie's Blog