Recession Proof Your Business #06

It’s great to be back on schedule. This is newsletter #06 in the series. If my math is right, we are doing 45 on “Recession Proofing Your Business” - so 39 to go after today.

When discussing Finance, I approach it with some trepidation. Like most of you, I’m a business owner who has learned about Financial Performance the hard way by failing; sometimes small losses and others catastrophic, but I understand Financial Performance. At the end of the day, how much money is in the cigar box? I don’t care about all the financial tricks to make the business look better, it is about profit and the reason we are in business.

Today I am starting with the basics, what are the minimum reports you need to understand in order to grasp what is happening? Unless you have a Chief Financial Officer (CFO), either full or part time, most bookkeepers/ accountants can tell you what happened when it is too late.

My goal today is to take the pulse of the business with just the basics so I can make real-time decisions and not wait until the end of the month to close the books - and more frustration. This ability is especially important with the upcoming (or arrived) recession when I can expect lower revenues paid with inflated money.

Summary

In support of today’s goals, I included podcasts from several shows on IBGR

This is a two-step process. It starts with you becoming intimate with the standard reports and using it to then build custom reports based on what you learn from the Balance Statement, Income Statement, Cash Flow Statement. The second step is to find at a minimum a CPA and the best case is a fractional CFO to handle the reporting so you can spend your time discussing the implications of past, present, and future decisions.

Balance Statement Podcast

The Balance Statement is a picture of an event - the business's financial position at the end of each month. Its purpose is to provide a clear picture of your assets, liabilities, and equity. Assets are what you own that drives revenue or supports business operations. Liabilities are long-term or additional obligations you have to gain assets. Equity is the leftovers when taking on liabilities to gain assets.

The Balance Sheet divides assets into groups: Current and Noncurrent. Current Assets are under 12 months old and can be easily converted to cash. 

• Current Assets: includes cash and cash equivalents, accounts receivable, and inventory. Inventory is further subdivided into raw materials, work in process, and finished goods.
• Non-Current Assets include machinery, computers, land, and buildings as well as intangible assets like goodwill, brand, and patents. Also included in this group is depreciation, which represents economic costs over the life of the equipment.
• Liabilities are listed in two groups: current and long-term. Current is debt due in the next 12 months and long-term is anything outside of a year. An example of long-term liabilities are car payments.

Income Statement Podcast

The Income Statement is a picture of the process - business conducted over the month. It is also known as the Profit and Loss Statement or P/L. It tells the business owner the level of profitability for the month. This is a critical document for bankers and other lenders to determine if the business is a good risk. It is a picture of Revenues & Gains, and Expenses & Losses. It explains how the Balance Statement changed from month to month.

• Provides insights into the efficiency of operations, the management of resources, and performance relative to its industry.

Cash Flow Statement Podcast

The Cash Flow Statement explains the process - how the Income Statement (P/L) created the Balance Statement. It reorganizes the information from the Income Statement into operations, investing, financing, and supporting. It also avoids tax issues like depreciation to give you a more accurate picture of cash demands.

• Operations address the sources of cash. Investing covers how acquiring assets that were obtained to operate and grow the business. 
• Financing is about shares and dividends; most small business owners are not taking or paying dividends during the company’s early stages, so this is usually blank. However, pay close attention to this item because if you were attracted by the concept of an employee buyout, it starts here. 
• Supporting covers non-financial transactions and taxes paid during the month.

Using these 3 statements or reports, you can see progress or regression one month to the next (Balance Sheet) and how did it happen (Income & Cash Flow Statement)

Our next Newsletter on Financial Performance is Understanding Product & Service Breakeven. It answers the question of how many do you have to make or how many hours do you have to sell to stay open?

Some closing thoughts

First, as the founder of IBGR, we have your back. We genuinely care about your success and know how lonely it can get building it alone. Contact us and let us know how we can support your business growth. 

Second, take a deeper dive into any of these topics on our blog.

Third, IBGR.News offers two daily business news services. Our news day starts at 4:00pm EDT with the latest news on European Startups. At the bottom of the hour (4:30pm EDT) we offer the latest global economic news. 

Finally, WHAT IF YOU COULD HAVE YOUR OWN DREAM TEAM HELPING YOU BUILD YOUR BUSINESS? 

Maybe you can! We have put together a program specifically for Coaches, Consultants,  and Course Creators and paired them up with their own trusted advisors helping you build your business! Your Dream Team comprises your own Marketing Consultant, Operations Consultant and Profitability Consultant, each bringing decades of experience and invaluable business knowledge and networks. 

Pair up with your team of consultants in a small group setting (15 members max) to build a “done with you” signature offer in 13 weeks knowing what to charge, how to run a business, and how to market yourself so you can fill your calendar and scale your business.

The program is called the FASTrack to PROFITAbility and your team is ready for you to take the first step. Check out this video training series to see if your business is a good fit. Then book a No-Risk, No-Obligation Coaching Call to uncover gaps in your business and gain valuable insights.