calculating business financials

As amazing as it sounds, when I start working with most clients, their Balance Sheet doesn’t mean anything to them since they simply don’t understand how to read it.

Your “Money Story” continues on the Balance Sheet.

Your Balance Sheet shows a running total of your assets, liabilities and owner’s equity from the time your practice was started. It also, shows monies that show up on your Profit and Loss (P&L) report.  An example would be if you purchase a computer or office equipment that would normally be posted on the Balance Sheet and affect cash going out that is not reflected against your net profits. Unfortunately, most owners do not pay attention to this as it is not easy to understand.

My method to make it more intelligible is to add a comparison column to show what money posted to the
Balance Sheet. For example, you can have the bookkeeper add a comparison column showing how much money was recorded on the Balance Sheet in the last 30 days. The most important categories are: your ending bank balance, loan payments, credit card payments and dividends.

These are all items that don’t have much to do with profit and loss and EVERYTHING to do with cash flow!

The balances for your bank accounts show what money is available once all the outstanding checks clear the bank. It’s not unusual for a business owner to rely on their online banking to see how much money they have available when paying bills. That’s a MISTAKE. You need to go to the Balance Sheet to see how much is available because of outstanding checks that may not have cleared your bank yet when you look at it online.

Dirty Little Secret of Cash Flow

My secret is to look at your Balance Sheet every time you review your Profit and Loss report and to view it on an ACCRUAL basis. Remember, we view our P&L on a cash basis, and most businesses view their Balance Sheet on a cash basis as well. However, you won’t see your Accounts Payable and Accounts Receivable balances unless you view it on an accrual basis.

Cash flow consultants, like me, take a deep dive into your books and strategize ways to limit liability, offset debt and keep your cash flowing. Following a review of your financials, I provide you with the tools and education needed to feel totally empowered while making informed business decisions regarding your company’s cash flow.

Your Balance Sheet and Debt Servicing 

Another important area on your Balance Sheet are the loans.  Only the principal portion of the loan payment is posted here.  The interest is posted on the P&L. It’s important to watch your debt servicing by utilizing an extra column to see how much money is going each month toward decreasing the liability.

When servicing debt, you need to have a strategy from a cash flow position. There has to be intention as to how much money can be allocated to service debt on a monthly basis. If you are not paying off your credit cards or line of credit, you need a strategy to know how much cash you can take each month to reduce this debt.

By using the 30 day column, you can see how much your principal payment is that is taking up cash requirements.  If you totaled all the money that is posted in the 30 day column, and multiplied it by the number of months for your year to date Profit and Loss; then subtract that total from your Net Income, you will have a 
Report Card Balance of what your Net Income is showing.  

Try this out!

You should be closing March, which is the 3rd month for your year-to-date Profit and Loss.  Let’s say your Net Income on a cash basis on the Profit and Loss is $30,000.  Sounds great, right? 

Now go to your Balance Sheet and total how much money has been posted in the last 90 days.  Lets say your loan principal is $7,000/month, your Dividends are $2,000/month, and you purchased a computer for $2,000.  The total amount of cash is equal to $29,000 for the last 3 months.  Now subtract that from your Net Profit of $30,000; that leaves you with a Report Card Balance Net Profit of $1,000.  You are probably experiencing a cash flow squeeze unless you have a very very high check book balance on your Balance Sheet that you maintain each month!

Come Learn the Dirty Little Secrets 

Want to learn how to create cash flow success? Then come to my in-person seminar on “Better Business Boost – Dirty Little Secrets About Cash Flow.”

Location: Better Business Bureau  
3801 E. Florida Avenue 

Suite 350 

Denver, CO 80210 

Date: Wednesday, April 25th 
Time: 11:15am – 1:00pm
Lunch will be provided
Cash Flow Forecasting App
An exciting new way to manage your cash flow is coming soon! I am creating a custom cash flow forecasting app to allow users to take control of their cash flow by uploading their own information to gain immediate insights.  Users will be provided an 8 month view into the future of what cash requirements will look like! The product is scheduled to launch 1st quarter 2018!
Want to be part of our soon to launch beta test?
On Your Team

With me on your team, you’ll get an accurate understanding of the financial health of your business and learn empowering, forward-looking cash flow strategies. Interested in learning more?  Contact me now.