A number of business owners that I meet tell me that the reason they prepare their monthly financials in the format they do is because that is how they report to the IRS. “We pay taxes on a cash basis, so we prepare all our financials that way”.
 

Bank Personal Guarantees and Collateral

Business owners often balk at giving personal guarantees but they are a fact of life in most banking relationships for small to medium-sized businesses. What guarantors often overlook is the benefit to them of the bank having adequate collateral for the loan and ensuring that it has been properly perfected.
 

Pay Yourself When You Pay Your Employees

Business owners pay their employees regularly, but many don’t pay themselves at the same time,  and this is a serious mistake that can lead to failure to achieve key personal financial goals. One major reason to own a business is to make more money for yourself than you could by working for somebody else, yet many people put themselves at the bottom of the list, get paid after everybody else and end up making less, not more. 
 
Financial statements can be very misleading when you are comparing months that contain different numbers of working days. The traditional approach presents numbers exactly as they appear from the financial records; producing meaningful financial statements calls for an entirely different way of presenting the information.
 
Being short of cash has very little to recommend it, and it is one of the most stressful situations that a business owner can face. To add to this stress, weak or negative cash flow often brings with it decreased profitability that is linked directly to the lack of cash in a business. This occurs in the form of both increased expenses and reduced productivity and in their different ways these can be equally harmful.
 

Expense Reorganization

Expenses seem to breed and need to be sprayed regularly if they are to be kept under control. The problem in reviewing them is that the way accountants present them is not helpful and they need to be looked at in a different way that makes review easier.
 

Steve’s Rules of Barter

Barter is a legitimate mechanism, but it is rare that you find a situation where it really works on a 1 to 1 basis.  All too often, you would not in fact buy the service if there was no barter involved, and it makes little sense to go ahead under those circumstances.
 
One of the things that holds small companies back from achieving their full potential is the reluctance of the owner to go into debt. While this is a laudable resistance point, sometimes it can be just as harmful as taking on debt in the first place.
 

Build Your Business with Credit Card Inertia

People often tell me that they don’t take credit cards and act as though it is somehow beneath them.  Lawyers, in particular, have told me that they feel that it is in some way inappropriate. 
 

Monthly Revenue Tracking

The most important starting point for most businesses to track each month is revenues, but what figure should businesses look at? The clear and logical answer is that you should track monthly billings and yet I have seen a number of businesses that track collections instead.
 
Numbers should be a servant, not a master. Running a business without monthly financials is like playing golf without keeping score but even monthly financials are of little practical value if they aren’t telling you what you need to know about your business.
 
The Gross margin is probably the most important in any business, and yet many people fail to measure it. Part of the reason for this is that the Gross margin is radically different for different businesses and in many cases it is not a well understood concept.
 
Any company that sells time has what amounts to an inventory of future hours that its clients have committed to buy from it at an agreed rate. This commitment may either be firm or contingent on future events, but it is important to find a way to calculate the size of the inventory on hand at any point as this is an important measurement of workload and ultimately of future revenues.
 
The measurement of contract revenue streams present some interesting challenges, both in the ways that they can be recorded on the financial statements and in the ways that they can be used to report wins and losses. In this article I will look only at how they can be more meaningfully presented on the financial statements.
 
There are very few businesses where everything is working perfectly, but a great number where the owner thinks that everything is fine. This mindset can best be summed up by the text of an advertisement I saw years ago that said (as near as I can remember):   
 
One of the most important things to measure is cash generated from operations each month, and I like to do this in two stages. The first stage is to turn the P&L into Cash Generated from Operations. The second step is to produce a statement that I call Quick Cash Flow – an approach which links the Profit and Loss and the Balance Sheet in a very effective fashion.  Click here to complete your own analysis.