Financial Foundations, Part 6 – How to Manage Finances

22 August 2015
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Categories: Dollars & Sense

This is the sixth installment in a series on the foundations of finance. If you haven’t already, I suggest that you start with the first post at this link.

I started off this series by looking at profit and cash—making and keeping money—from a high level, and now we’re contemplating how we manage.  The last installment was on managing the business to make money.  Now let’s look at financial management. […]

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Financial Foundations, Part 5 – Managing the Business

30 June 2015 Categories: Dollars & Sense

This is the fifth installment in a series on the foundations of finance. If you haven’t already, I suggest that you start with the first post at this link.

As we continue to look at the essentials of business from a financial perspective, I now want to look at optimally managing the business.  The question in my book is “How do we manage the business to improve the bottom line?”  It’s not about the product offering, marketing, or platform, but the principles of management.  In some ways, this is tough, because there are many types of businesses run in different ways.  Yet as I have been thinking about it, I believe there are universal principles that apply to all businesses. […]

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Financial Foundations, Part 4 – How to Change Your Numbers

20 June 2015 Categories: Dollars & Sense

This is the fourth installment in a series on the foundations of finance. If you haven’t already, I suggest that you start with the first post at this link.

In the previous post, I introduced the notion that numbers can be changed, and that we can do this either by influencing income and controlling expenses.  But it’s not enough to believe that we can change them—we actually need execute change!  Here are the steps to changing our numbers: […]

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Financial Foundations, Part 3 – Numbers CAN be Changed

12 June 2015 Categories: Dollars & Sense

This is the third installment in a series on the foundations of finance. If you haven’t already, I suggest that you start with the first post at this link.

Friends, I have wonderful news! We have tremendous control over whether or not our businesses are making money. In my first post, I said that a business must be make money, meaning that after expenses, there is money left over. Not break even, but money actually made, put in the savings account to prepare for a rainy day or to invest in the business. Today, I am saying that we can manage our numbers through business decisions, influencing our customers, or by direct control. Let me explain. […]

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Financial Foundations, Part 2 – Mind the Piggy Bank

04 June 2015 Categories: Dollars & Sense

This is the second installment in a series on the foundations of finance. If you haven’t already, I suggest that you start with the first post at this link

After we start to make money, we need to put it in the bank and hold on to at least some of it.  After all, it’s your money that fuels business growth, provides for needs, and ultimate leads to a lifestyle of freedom, abundance, and charity.  I recommend that we have 2-3 months expense needs in savings.  […]

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Financial Foundations, Part 1 – Make Money!

24 May 2015 Categories: Dollars & Sense

This is the first in a series of posts on the most important principles of finance, small business or otherwise. In preparing them, asked myself the question: “If I knew that I was going to die tomorrow, what would I say that would allow decades of work to carry on without me?” This, and subsequent posts, are the answers to that question. They are the lessons I’ve learned from working with clients, and they are the lessons I’ve learned myself—so much so, that many times I refer to “us” rather than “you”.  They are the guiding principles that would apply to any business at any time, with the caveat that discretion is of utmost importance. And while some may be obvious, I think it is worth reiterating this principles anyway. I hope you enjoy reading them, that you will find them beneficial, and I hope that I don’t die tomorrow!

We have to make money!  Obvious, yes.  But this is the bottom line.  Every business needs to make more than it spends, spend less than it makes… a business simply must have a positive bottom line. While this may seem as plain as the nose on my face, the fact of the matter is that I’ve seen many cases where this was lost in the busyness of daily operations.  In fact, that is how I was in the early days of my business. And, as best as I can tell, it comes from a sense of unguarded optimism that shows up in statements like: […]

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Demystifying Financial Reports

04 April 2015 Categories: Dollars & Sense

Not long ago I was looking at some x-rays, and was trying to make sense of what I was looking at.  To me, I was just looking at picture of my skeleton.  But to the technician I was with, there was a story that was being told—one of trauma that was in process of healing.  And, once they showed me what to look for on that x-ray, I understood what was going on too.

The reason I share this is because it reminds me of what I often experience when talking to business owners about their financial reports: once they know what to look for, they see and understand what the numbers are telling them about their business.  But at first glance, it looks complicated, and I think for two reasons.  The first reason is that there are a lot of reports that QuickBooks desktop version offers.  There are more than 150 reports that QuickBooks generates, and that’s before getting into the tweaks and modifications that one can make to them.  Second, I think it looks complicated because of unfamiliarity with the reports themselves—unfamiliar with the layout and the intent of the report.

What I’d like to do in this post is to give clarity and demystify financial reports.  We’ll do this by looking at the different reports and see if we can winnow down which ones to look at since 150 reports seems overwhelming and could lead to information overload.  And as we review the essential reports, we’ll also think about information should be highlighted as we review them.

Core Reports
The first core report is the Balance Sheet, which at the highest level, is the net worth statement for the business.  When reviewing it, the focus is on working capital, which is calculated as:

  • how much money we have in the bank,
  • plus how much money we’re expecting soon from customer payments (receivables),
  • minus how much money we need to pay out in the near future (particularly bills recorded in accounts payable, credit card balances, short-term loans, and tax obligations).

This means that there is a lot that can be ignored on the balance sheet: fixed assets, depreciation, amortization, and long term obligations.  While I don’t want to get technical here, I think it merits explanation why.  It’s not that these aren’t important, but because they don’t have much bearing on near-term decisions in the business.  Think of it this way: when it comes to the managing the family finances and figuring out how much you can spend on your next vacation, we check our bank accounts, money market mutual fund balances, and credit cards to see what’s available, and not raid the retirement fund or sell the car or house to go on that vacation!

The second core report is the Profit & Loss Statement, which is quite straightforward: the more money at the very bottom, the better!  That said, I find that businesses benefit by following several principles with this report.

  • First, it helps when we keep cost of goods sold (expenses that are incurred to make income (such as inventory or contractors you hire to support a special project) separate from regularly recurring overhead. This will make it easier to see what the “monthly nut” is that needs to be regularly met, versus the costs that increase or decrease depending on how much you’re selling.
  • Second, it helps to keep tax-related items out of overhead too. I would include in this both the taxes themselves, and depreciation, amortization which primarily tax accountants are concerned with.  It’s not that these aren’t important, but how often do we include depreciation as part of making a business decision?  Probably not very often.
  • Finally, the way the Profit & Loss Statement is organized can help clarify and make meaningful the information. Using account numbers to sort the report with key figures toward the top, keeping the report to no more than two pages, and using subaccounts are common techniques for having a clear, meaningful layout for this report.

Additional Reports
In addition to the Balance Sheet and the Profit & Loss Statement, QuickBooks offers a lot of other reports.  To make it easy, we can break those down into three categories: reports that supplement these two reports, management reports to help manage the business, and information reports.

Supplemental reports provide greater detail and insight into the Balance Sheet and the Profit & Loss Statement.  For example, I might be meeting with a client and point out that accounts receivable seems high, so we’ll look at an Accounts Receivable Summary report to get a list of which clients owe them money and how old those receivables are, because we want to make sure that there aren’t going to be collection problems.  Or perhaps we’ll notice that income is doing well, and so we want to understand what is working right.  So we’ll look at Sales by Item and Sales by Customer reports to find out if there is a product that is doing well or a client that has been buying more.

While the core reports give an overview, and supplemental reports provide supporting detail, the core purpose of management reports allow us to manage the business, and especially to make it easier to manage the business.  A collections report gives a customer name, contact information, and list of outstanding invoices to make it easier to contact them and collect money.   Likewise, the time management reports help us manage staff and client services to see what work has been done and how much time has been spent by my people on different clients.

Information reports provide lists or other information to help manage the business.  Being able to print a customer contact list or vendor contact list can be helpful for non-financial staff.  Sometimes I’ll find that my task management system has too much detail, and I’ll go back to QuickBooks and print my list of clients to take a high level view of where each is at.

As incredible as it may sound, this is really the essence of financial reporting: run a Balance Sheet, run a Profit & Loss Statement, run supplemental reports to round out the picture, and that will give a fairly complete picture of where a business is at and how it is doing.

As I wrap up here, I’m asking myself how to make it most beneficial for you, my entrepreneurial reader… First, I suggest that you go into the QuickBooks reports menu, find the Balance Sheet and Profit & Loss Statement reports, and look at them.   Go ahead and print them, and then start marking them up.  For the Balance Sheet, circle the bank balances, accounts receivable, and the short-term liabilities (credit card, accounts payable, and taxes), then do the math: bank + receivables – liabilities = working capital.  Likewise, on the Profit and Loss statement, just look at the bottom.  Is it what you want to see?  And finally, start looking through the different report titles and seeing if there are reports that might supplement information that you’ll need to look at.

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Wealth versus Money

20 December 2014 Categories: Dollars & Sense

I have a series of posts that I was going to start on, but then I realized that it would be good to take a look at the big picture early on. And what I’m talking about the big picture, I’m talking about the BIG picture. Highly philosophical. Meaning of life type stuff. The reason for this is because I really want to establish context for our discussions on money. With that in mind, I want to introduce the idea of differentiating between wealth and money, because I think it will help us establish the role that money has, what can and cannot do, and give us an approach to think about what we really want, which is to be content, satisfied, and happy.

As I’ve been thinking about this, I was reminded of a point in Scripture where Christ is talking to his disciples, and he asks them “…what will it profit a man if he gains the whole world and forfeits his soul?” Now, I’m not going to go into a spiritual discourse here, but the principle is the same. What good will it be to you, your loved ones, friends, and staff if the quest for money makes you a poor companion?

Yet, at the same time, having sufficient money for shelter, food, security, education, and pleasure is important. Without it, we become worried, hungry, and hopeless! So money really is an important part of the equation, but I find that financial wealth is only a part of it. With that in mind, I would like to suggest these breakdowns between money and wealth:

Money provides:

  • Freedom—of mobility and choices
  • Greater peace of mind
  • Opportunity—to help ourselves, and to help others

But in order to become truly wealthy, we also need to seek:

  • Relationships
  • Recreation
  • Time to recharge
  • Activities that bring us to life

I really want to focus on that very last point. I find for myself that there are certain things that I do that take me to a new level of life. When I do these things, it doesn’t feel like work, and by the time I’m finished I feel a great deal of satisfaction that I have contributed to the world. Sometimes, when I’m with friends, or even clients, and we’re talking about the big picture, I’ll ask them, “What gives you life?”

You see, I believe that the more time we spend in that zone, the wealthier we become overall. Admittedly, some of it is not financial wealth. But you know what? That’s okay! If you’re going to become the greatest version of you, then you will spend time pursuing those things.

Now, you might be saying to yourself, “But Jonathan, how on earth can I have time to do those things when I’m trying to stay out of financial hot water?”  I very much understand, since I’ve been through it myself. My suggestion is simply this: find a way to get a day away from your normal environment—somewhere that will let the creative juices flow, take with you a journal or blank notebook, and like an artist’s canvas, paint a picture of life lived to the fullest by answering two questions:

  • What brings me life?
  • What do I want out of life?

Several months ago, on a cool fall day, I asked myself those questions at a monastery in the Hudson Valley, and it has already made a tremendous impact on my life and my business, because I have a much greater focus on what I should be doing for myself and to help my clients.  In fact, I consider it such an important exercise that I included it in Stop Living from Check to Check, my course on how to increase monetary wealth.  It’s my hope that you can do these exercises like I did, realize the same benefits that I am seeing, and indeed, become wealthy in all senses of the word.


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Get money faster

12 December 2014 Categories: Dollars & Sense

In recent weeks we’ve looked at how ideas turn into money, about deciding which idea to pursue first, and the value of planning.  To wrap things up, let’s take a look at how to quickly turn that great idea into reality.  After all, you can’t cash in on it if all it does it just sits there!

The first thought I have is the value of speed.  As I think about it today, there are three reasons why speed is important:

  • The faster we get from Idea to Implementation, the faster we realize that Return on Investment.
  • The faster we realize the Return on Investment, the faster we can improve the Return on Investment by tweaking the idea.
  • The faster we implement, we can also find out if (hopefully not, but possible) if the idea was a bad one and divest.

For example, let’s say that you want to roll out a new product line that you think will bring in a new of $200,000 next year.  You work out the logistics with the suppliers and you add a new sales rep to promote it.  After two months working on it, you see that you have initial orders with your existing reps, but not with the new one.  So a) you are seeing a return on investment, b) need to manage the process with the new sales rep, and c) you know that you will keep the line.

So how do we get speed?  When I look at how I operate (a moment of frank disclosure here!), I observe two things:

  • I need to speed up my start, and
  • I need to push to the finish.

I talked a little bit about speeding up the start in the last post, which is about planning and getting the plan done quickly so that we can start the new initiative quickly.  But what about pushing through to the finish?  Here are some techniques that we can use to push through:

  • Keep the end result (not any technique, but result) in mind at all times.
  • Focus on one internal project at a time.  It is better to move one thing a long way rather than 100 things a little bit (credit to Alan Weiss for this one).
  • Personally, I’m reminding myself that there are things I should not be doing (things that can be delegated, don’t add value to my business or personal lives), since time spend doing things I shouldn’t crowd out valuable time for things I should be doing.
  • Improving our delegation skills by getting the project started in the right direction, then turn what can be delegated over to someone else.
  • Blocking time more by setting aside a few hours of intense productivity, removing distractions, and setting goals for those sessions.
  • And finally, a new one I heard about: evaluate when you’ve reached about 80% of completion on the project.  If it is good enough, then wrap up.  If not good enough, do 80% of the remaining tasks, then reevaluate.

So those are things that we all can do to be better entrepreneurs and to turn ideas into reality and cash in faster.  What about you?  Any other techniques you use?  Let me know.

Oh, and I hope you have that list of projects I suggested you write down in my first post in this series.  Why not grab it, and see which one you can get done quickly?

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The Best Laid Plans…

29 November 2014 Categories: Dollars & Sense

As we look continue to look at the relationship between ideas and wealth, I think it is important to consider the planning process.  My past experiences with planning could be comedic if it weren’t for the fact that I suffered as a result!  Sometimes the plan would be scuttled shortly after starting the project, other times my goal was so lofty that it would be nearly impossible to reach (and therefore the project sadly withered away), or I got so embroiled in planning that the plan became a fruitless project of its own.  See, this is what happens when a creative person becomes an accidental entrepreneur!  So let’s learn from my mistakes, shall we, and talk about what good planning is.

To me, a good plan has three components:

  1. the plan itself was made quickly,
  2. the path to bringing the idea to life is short, and
  3. the existing idea is pretty much like you envisioned it to be.

With these three things in mind, here are my principles of good planning:

Plan fast.  I think it’s safe to say that most small business ideas can be mapped out on a napkin over lunch.  If the planning session is taking longer than lunch and / or more than one napkin, check with yourself to make sure that you aren’t over thinking the project.  Sure there are details, but the overall game plan can be mapped out quickly, and then preferably delegated to someone else to work out the details.

Don’t make it complicated.  Remember: more complex = more steps = potentially more bottlenecks = more things that can go wrong = delays, delays, delays = longer time to complete.

Focus on good enough.  At what point do you reach satisfactory outcome for minimal effort?  Developers and manufacturers call this the minimal viable product: the point at which the product solves the problem for the customer without additional bells and whistles.  For example, you have an idea for a nice mailer.  After getting the budget / the graphic design is too detailed.

What is the real outcome you want?  What do you really need?  What is important?  The other day I was on the subway and a tourist was asking how to transfer to the E train.  I and other passengers started to tell him what to do, but when he revealed his destination, the story changed and we realized that he would get there faster by a different route.  He needed to know how to get to the World Trade Center, not how to get to the E train.  So don’t get too hung up on technique, do worry about destination.

If you get stuck, program your internal computer for the destination with the desired outcome*, then go for a bike ride to Long Island**.  Over the course of the ride, your subconscious will go to work on the problem and you’ll likely have the solution by the time you’re done.

By now, if you’ve been following this series, you should have a few business improving / wealth generating ideas listed, and also know the order in which you want to do them.  Why not take the next step by giving yourself a coffee break at a diner, grabbing a napkin, and plotting the key steps to bringing that idea to life.


*  I recommend you read “How Your Automatic Success Mechanism Works” and “Understanding the Two General Types of Servo-Mechanisms” from Psycho-Cybernetics to understand the importance of this.

** My choice for getting myself and my head away from it all.  I kind of understand if it’s not your thing, but I’m sure there’s something you love doing that has the same effect–golf, crafts, cooking, woodworking, etc.

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