Statement Of Cash Flows

The Statement of Cash Flows (SOCF) is an important report for a company, even though it is not as commonly talked about as the Balance Sheet or Income Statement.

The SOCF is where the Balance Sheet and Income Statement converge.  It shows the change in cash from one period (January) to another (December).

Yesterday, when speaking with a partner of a major accounting firm, he stressed the significance of this report when he evaluates a company.

Is the company generating cash?  If so, how is it generated?  How is the cash being used in the business?  These are just a few questions the Statement of Cash Flows answers for the reader.

Let’s look at this report…stay with me now, don’t nod of…;-)

The SOCF is broken down in three sections: operating, investing, and financing activities.

Operating Activities

This section reveals the cash generated from operations.  It starts with the Net Income (Sales – Cost of Sales – Overhead Expenses).  This amount is increased or decreased by the non-cash items.  Let’s look at three examples:

1)     Depreciation and amortization are expenses on the income statement that are non-cash, so they would be an increase to the Net Income.

2)     The growth (decrease in cash) or decline (increase in cash) in accounts receivable (products or services sold on credit) or inventory, would have an impact.

3)     The amount owed vendors (accounts payable) would impact cash positively (increase in A/P) or negatively (decrease in A/P).

Other items reflected in this section would be the changes in prepaid expenses (expenses paid in advance), deposits, and advances to employees.

Investing Activities

The investing activities section reflects cash generated or used by the purchase or sale of fixed assets.  Examples: addition of new equipment in the manufacturing plant; sale or disposal of assets.

If the company is putting cash into additional assets, what is the expected return?  Will it allow the company to expand market share?

Financing Activities

This section covers the debt and equity areas of the balance sheet.  If a company increases or pays off debt, sells or purchases stock, and makes dividend payments, it will be reflected in the financing activities of the SOCF.

A SOCF is a great tool to understand how a company is generating and using its cash.  Does your company use this valuable statement?  Does your team need assistance in putting one together?  Let us help; call 561.302.6304.

Live Passionately!

John

Seven Key Areas That Reveal A Leader

In reviewing The 21 Irrefutable Law of Leadership again, the following is an excerpt from the book by Maxwell.

“Over the course of time, seven key areas reveal themselves in a leader’s lives that cause them to step forward as leaders:”

Character – Who They Are

“True leadership always begins with the inner person.  People can sense the depth of character.”

Relationships – Who They Know

“You’re a leader only if you have followers, and that always requires the development of relationships – the deeper the relationships, the stronger the potential leadership.”

Knowledge – Who They Know

“Information is vital to a leader.  You need a grasp of the facts, an understanding of the factors involved, and a vision for the future.  Knowledge alone won’t make someone a leader, but without it, he can’t become one.”

Intuition – What They Feel

“Leadership requires more than just a command of data.  It demands an ability to deal with numerous intangibles.”

Experience – Where They’ve Been

“The greater the challenges you’ve faced in the past, the more likely followers are to give you a chance.  Experience doesn’t guarantee credibility, but it encourages people to give you a chance to prove that you are capable.”

Past Success – What They’ve Done

“Nothing speaks to followers like a good track record.  Every time I extended myself, took a risk, and succeeded, followers had another reason to trust my leadership ability – and to listen to what I had to say.”

Ability – What They Can Do

“The bottom line for followers is what a leader is capable of.  Ultimately, that’s the reason people will listen to you and acknowledge you as their leader.  As soon as they no longer believe you can deliver, they will stop listening.”

As you read through the seven key areas, how were you challenged? Is there a specific area where you need improvement?  What can you do about it this week?

Live Passionately and Lead!

John

The BIG Idea From Who Moved My Cheese?

Who Moved My Cheese? written by Spencer Johnson, M.D., co-author of The One Minute Manager, is a #1 bestseller. It’s an a-mazing way to deal with change in your work and life.

The book is a parable that reveals truths for dealing with change.  I read it a few years ago and re-read it this weekend.  It has simple and clear principles we all need…especially in today’s ‘changing’ environment.

“Cheese” is a metaphor for what you may want in life: whether it’s a job, relationship, health, business, or…

The lessons from the parable are:

Change Happens – they keep moving the cheese.

Anticipate Change – get ready for the cheese to move.

Monitor Change – smell the cheese often so you know when it is getting old.

Adapt To Change Quickly – the quicker you let go of old cheese, the sooner you can enjoy new cheese.

Change – move with the cheese.

Enjoy Change! – savor the adventure and the taste of the new cheese!

Be Ready to Quickly Change Again and Again – they keep moving the cheese.

Here are four quotes from the book that challenged me:

“The biggest inhibitor to change lies within yourself, and that nothing goes better until you change.”

“The more important your cheese is to you, the more you want to hold onto it.”

“If you do not change, you can become extinct.”

“What would you do if you weren’t afraid? Sometimes fear can be good.  When you are afraid things are going to get worse if you don’t do something, it can prompt you into action.  But it is not good when you are so afraid that it keeps you from doing anything.  Haw (one of the characters) realized he had been held captive by his own fear. Moving in a new direction had freed him.”

This book was also recommended by David Clarke, Co-Founder of BGT Partners, a recent guest on the Live Passionately! blog radio show.  (Listen to the show).

Take the couple of hours to read Who Moved My Cheese? and make a decision to create the change needed in your business.

Live Passionately!

John

You Gotta Believe!

Belief is an essential trait for a leader.

What do I mean by Belief?  It is the inner knowing that reveals itself in our action. A habit of mind in which trust or confidence is placed in some person or thing.

“In the long run, a belief is more than an idea that a person possesses.  It is an idea that possesses a person.” John Maxwell.

Our beliefs can condition our results…beliefs are either limiting our limitless!!!!

Seven results of belief:

1. Our Belief drives our actions – if we believe it, we’ll act on it.  Paul Harvey says it this way: “If you don’t live it, you don’t believe it”.  How you behave, what you do, and how you do it, is a result of your beliefs.
2. Our Belief determines our results – Henry Ford is known for a quote: “If you think you can, or think you can’t, you’re right.”
3. Our Belief inspires our goals – the goals we set in each of our roles: spouse, parent, employer is inspired by our belief.
4. Our Beliefs focuses our attention – act as blinders to allow us to focus our attention and block out detractors for pursuing our goals and dreams.
5. Our Belief reveals our values – our belief impacts our actions which in turn reveal our values.
6. Our Belief impacts our effectiveness – as we live an inspired and passionate life, by what we believe, we are more effective in what we do.
7. Our Belief fuels our confidence – as we are taking action on what we believe, confidence grows and pushes us forward.

John Maxwell says “Lack of belief can act as a ceiling on talent.  However, when people believe in themselves, they unleash power in themselves and resources around them that almost immediately take them to a higher level. Your potential is a picture of what you can become.  Belief helps you see the picture and reach it.”

Exercise Your Belief

Here are four steps to grow and develop belief:

1. Identify a current goal or passion
2. See it being accomplished…feel the emotions you will have when its accomplished
3. BELIEVE it is so…Believe it down to your core!
4. Repeat exercise for 21 days

Live Passionately with Belief!

 

John

Are You Asking These Questions To Determine Your Pricing Strategy?

When determining the price for your product or service here are a few things to consider:

• What is the market condition?

• What is the market willing to pay?

• Do existing customers or clients clearly understand the value being created?  How is this being communicated?

• Is the competition dictating the price?

• What is the company overhead?

• What does it cost to produce the product or service?

• What is the margin needed to cover the company overhead?

• Is the sales team leaving money on the table?

Answer the questions clearly and accurately to ensure that the pricing of your services are creating the opportunity for profitability.

Live Passionately!

John

Importance Of Recording Transactions

One of the key functions a CFO provides according to Terry Weaver, CEO of Chief Executive Boards International (Read more on my blog post), was that a CFO:

Plans, considers and decides how financial transactions will be booked, consistent with the objectives and strategies of the business.

What does that really mean?  It actually sounds very boring and of little importance.

Simply put, when any transaction occurs in the company, the CFO establishes controls and process to determine how it is recorded.  This includes sales, capital purchases, research and development, cost of sales, and overhead.

Well, boring yes, but let’s discuss three reasons why it’s important: Principles, Presentation, Profitability.

Principles

General Accepted Accounting Principles (GAAP) is the US standard for which financial statements are prepared.  These principles put boundaries and parameters around how information is recorded and reported.

Third party ‘readers’ of the reports can place more confidence in the report when transactions are handled with a set of principles.

Presentation

Consistent reporting allows the owner to look at information over different time periods and compare results.  Trend analysis (gathering data and evaluating the pattern or trend to assist in determining future results) is able to be completed.

The way the accounting system is structured will create effective reports.  It allows expenses to be broken down by departments or division or market segment or product type.

Profitability

When information is properly recorded, profitability is measured more easily.

Are the fixed costs reflected as such so an accurate break even can be calculated? Is the cost of sales understood so measure gross profit and margins can be measured? Are the costs understood to ensure the pricing strategy is actually creating profit?

Two of my clients understand the importance of knowing the information; they will walk away from projects if the profits aren’t there.  Sounds basic, but companies are taking projects at a loss just to keep people busy…

Three simple reasons to make sure the information going ‘through’ the books of a company are handled properly.

Are your financial reports providing you with the right information?  Call us at 561.347.8586 and we’ll help to make it so.

Live Passionately!

John

So What’s EBITDA?

EBITDA is a term used in the business community to evaluate a company’s performance.

A friend once told me it sounded like an ice cream flavor.  Well, some may think EBITDA is as valuable in analysis as ice cream is to your diet.

What does it mean?  EBITDA is an acronym for ‘earnings, before, interest, taxes, deprecation, and amortization’.  It is an indicator of a company’s operations.

The formula is:  EBITDA = Net income (earnings) – interest (cost of borrowing) – taxes (amount paid to the government) – depreciation (expensing of fixed assets over time) – amortization (expensing of an intangible asset over time).

The principle behind EBITDA is it measures the cash generated by the operations of a company; it also allows analyst to compare the profitability of different companies in the same industry; and is used to determine the value of a company.

A word of caution is the fact that EBITDA does not show the total cash flow of a business. It excludes capital expenditures, and the cash required to fund working capital, which can be significant.

Like all financial ratios or calculations EBITDA should be considered as one of the measurements of a business; however, it should be used in conjunction with other financial ratios.

Do you understand your company’s ratios? Are you operating as effectively as you can?  Do you wish you had someone to analyze and explain what’s happening in your business?  Would you like someone to assist you moving your company from good to great?

Let the team at Barbar Financial be your trusted advisors.  Simply hit reply to this email us at info@barbarfinancial.com and let us help you!

We are committed to you because your success is our objective!

Live Passionately!

John

The BIG Idea from The 21 Irrefutable Laws of Leadership

“Everything rises and falls on leaderhip”, John Maxwell.

This quote proves itself true more and more each week as I interact with business owners and entreprenuers.

Maxwell has written numerous books on the subject, one of which is The 21 Irrefutable Laws of Leadership.

Zig Ziglar, says this about the book…it ‘is a powerful, definitive statement of the timeless laws you simply must follow if you want to be a great leader – at home, on the job, in church, or wherever you are called to lead’.

Here are four of the Laws of Leadership with excerpts from the book:

The Law of Influence

“The true measure of leadership is influence-nothing more, nothing less.  If you don’t have influence, you will never be able to lead others.”

“He who thinks he leads, but has no followers, is only taking a walk.”

The Law of Solid Ground

“Trust is the foundation of leadership.  To build trust, a leader must exemplify these qualities: competence, connection, and character.  Character makes trust possible.  And trust makes leadership possible.  That is the Law of Solid Ground.”

The Law of Priorities

“Leaders understand that activity is not necessarily accomplishment.”

“For the last ten years. I’ve used two guidelines to help me measure my activity and determine my priorities.  The first is the Pareto Principle.  The idea is this:  If you focus your attention on the activities that rank in the top 20 percent in terms of importance, you will have an 80 percent return on effort.”

“The second guideline is the three R’s.  To be effective, leaders must order their lives according to these three questions:  What is required?  What gives the greatest return? What brings the greatest reward?”

The Law of Explosive Growth

“To add growth, lead followers – to multiply, lead leaders.  Leaders who develop followers grow their organization only one person at a time.  But leaders who develop leaders multiply their growth, because for every leader they develop, they also receive all of that leader’s followers.”

This is a small portion of the powerful truths in this book.  If you haven’t read it, do so this month;  if you have, refresh yourself on the principles.

Live Passionately!

 

John

Is Your Attitude Big Enough?

This was an article I received on June 28 written by E.R. Haas, CEO, of TQ, Inc.  It challenged me and thought it may you…below is the article…

“At the exact halfway point in the year, I find it useful to look back to see what I have accomplished—and look forward to see what I hope to accomplish before the year runs its course.

In a way, this turning-point is a critical juncture in reaffirming that what I say I want, is indeed what I intend to spend my working days pursuing—and if I have the power necessary to transform my hopes into tangible results.

My Top 3 Major 2011 Goals:

1)_________________________________
2)_________________________________
3)_________________________________

Direction and Speed…

Please take a moment to stop and reflect on both your DIRECTION and SPEED today.

Are you now moving FASTER in the direction of your GOALS?

Look outside to your 2011 GOALS.

Now, look inside to your 2011 ATTITUDE.

Do you have the ATTITUDE necessary… is it BIG ENOUGH… to move your top 3 GOALS off this page, and into your life?

What I want you to do is look at the size of your GOALS and compare it to the size of your ATTITUDE. To be successful, your ATTITUDE needs to dwarf your GOALS! Does it?

Is your Attitude causing you problems?

You can tell when…

• You don’t expect to succeed so you’re defeated before you even start.
• You look forward in resignation and backwards in regret.
• You always find more reasons why something won’t work than why it can.
• You’re convinced that you’re never going to get any better than you are right now.
• You believe that the glass is half empty but only temporarily, because you’re going to have even less after some evaporates.

However, when your Attitude is strong and vibrant…

• You feel in charge of life and ask what more can you do to make it better.
• Success is never a matter of “if,” only a matter of “when,” and that means soon.
• You first know that anything is possible — then you figure out how.
• You can’t wait until tomorrow because you keep getting better every day.
• You believe the glass is half full, but only temporarily, because you’ve got your order in for more, and you’re busy getting bigger glasses.

Your ATTITUDE, enthusiasm and self-confidence is critical to lasting success, because a winning attitude energizes your mission, transforming raw potential into sheer power.

Because you have the deep-seated belief that you can achieve anything you want, an endless series of possibilities open up for you — creating real opportunities for advancement.

Future success isn’t limited by past failures — but by your willingness to take the right actions — right now. A positive attitude gives you the power and confidence to approach every situation with the expectation that you will ultimately find the right thing to do — and then do it.

A negative, self-defeating attitude destroys all hope of success. A positive, proactive attitude guarantees it.”

Think about it. — E.R. Haas, CEO, www.Thinktq.com

Powerful!!! If your attitude is not dwarfing your goals…change it!

Live Passionately!

John

What Are You Willing To Do For Freedom?

Freedom is the wonderful blessing we have here in the USA.  Many have given their lives so that we may enjoy such a privilege.

Freedom is invigorating, inspiring, and insatiable.  It is also not free…with it comes responsibility.

Freedom  requires sacrifice, focus, determination, commitment, purpose, selflessness, courage, vision, passion, drive….and much more.

The one word that jumps at me out of the list above is – Sacrifice.  In any area of life we are striving to create freedom and independence, sacrifice is required.

Many want the benefits of freedom, but are not willing to pay the price…I occasionally ask myself this question and don’t always like the answer.

What areas in your company is sacrifice needed to create the freedom you desire?

Look objectively and identify at least one – then go after it!

Is it financial discipline – spending less than you make? Or creating and implementing a plan of action to grow your company? It may be treating your team better so they can serve your customers more effectively? Or….

It will require sacrifice…and it will be worth it!  YOU can do it!  I believe in you!

Live Passionately and Sacrificially!

John