LIFESTYLE BUSINESS ACCELERATOR 90 Day Program | 7 Balance Sheet, Cash Flow, & Startup Assumptions
P&L
WHAT DOES P&L TELL YOU? (PROFIT AND LOST IS ALSO CALLED THE INCOME STATEMENT)
This shows the summary of revenue and expenses over a specific period of time.
Example P&L of January 2016
Revenue $100- Cost of Goods Sold $50=Gross Profit $50
-Operating Expenses $30=Operating Profit $20
-Interest $3-Taxes $5=Net Profit $12
It can tell you if you are making $ or if not why you are not.
It can also tell you when compared to your budget how you are doing compared to how you planned to do.
All of this is summed up on the Profit & Loss Statement.
There are 2 other important financial statements for you to understand: balance Sheet and Cash Flow Statement
ACCRUAL ACCOUNTING
Revenue & Expenses recorded before cash actually changes hands. Recorded when sale is made or expense incurred.
CASH ACCOUNTINGRevenue & Expenses recorded when cash changes hands.
PAYMENT TERMSBetween you and your vendors/providers and you and your customers
CASH ON DELIVERY - COD Net 7, 10, 15, 30, 45, 60 or 90 usually
CASH FLOWDifference between
Profit & Loss and Cash Flow
CASH FLOWWatch Video
Why it matters - Example of inventory
Cash problems
Times when inventory is outpacing Revenue
Problems with collecting Accounts
Receivable
BALANCE SHEET DEFINITION
A balance sheet is a financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by shareholders.
BALANCE SHEET
Why?
WHAT A BALANCE SHEET CAN SHOW YOU
BALANCE SHEETThe balance sheet adheres to the following formula:
ASSETS = LIABILITIES + SHAREHOLDERS’ EQUITY
DEPRECIATIONIs a method of allocating the cost of a tangible asset over its useful life. Businesses depreciate long-term assets for both tax and accounting purposes.
AMORTIZATIONThe spreading out of capital expenses for intangible assets over a specific period of time (usually over the asset's useful life) for accounting and tax purposes. Amortization is similar to depreciation, which is used for tangible assets, and to depletion, which is used with natural resources. Amortization roughly matches an asset’s expense with the revenue it generates.
GOODWILLGoodwill is an intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment. The goodwill account can be found in the assets portion of a company's balance sheet.
LIQUID ASSETSAn asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally regarded in the same light as cash because their prices are relatively stable when they are sold on the open market.
BALANCE SHEET DEFINITIONS
CURRENT ASSETS (LIQUID ASSETS) CashAccounts ReceivableInventory Deposits
FIXED ASSETSCapital Assets (Things that can be moved or sold - furniture, furnishings, etc) Depreciation - loss of value in capital assets
OTHER ASSETSIntangible assets (Goodwill, Trademarks, Patents)
CURRENT LIABILITIES (WILL COME DUE IN LESS THAN 1 YEAR)Accounts payableShort-term notesOther ST liabilities
LONG TERM LIABILITIES MortgagesDeferred TaxesLong Term Loans
CAPITAL INVESTMENTSRetained EarningsOwner’s withdrawals & Dividends
ASSETS LIABILITIES EQUITY- =BALANCE SHEET CONT.