Small Business

Preparing Cash Flow Statements – the 2 Different Approaches

Preparing Cash Flow Statements – the 2 Different Approaches

I’m often asked about the two different ways of preparing cash flow statements.  They are methods. Just methods. We all have our favorite way of doing things and they work for our purposes.  Sometimes we can’t even explain why we use one technique over another.  The best answer we can muster is, “that’s the way I was trained”.  In accounting, as long as we adhere to the guiding principles, most every method has a reasonable explanation. Preparing a statement of cash flow for a company is no different. 

 

But there has to be a reason why nearly all companies use the indirect method versus the direct method.

There is – and the answer isn’t that interesting.  It’s just easier.  So let’s discuss what the primary differences are so you can come to your own conclusion about which method you prefer...

The Complexity of Goodwill

The Complexity of Goodwill

I often get asked about goodwill – its importance as well as how to value it. It’s complex. Goodwill is intangible. Hard to quantify but an important asset none the less. 

Goodwill is defined as the amount of money someone is willing to pay for a company over and above the value of the assets within the company. The company’s book value is the equity within the company as listed on the balance sheet. Any money paid above the book value is considered goodwill. It’s the difference between cash received during the purchase and the actual value of the company.

Live from Louisiana State University

Live from Louisiana State University

I’ve been spending the week at the Graduate School of Banking at Louisiana State University, teaching bankers about small businesses. I’m sporting my purple shirt and spent some time visiting world-famous Mike, LSU’s mascot.

It’s been a great week. I love sharing what I learned running my own businesses and also helping others run theirs. It’s gratifying helping bankers understand the small business mindset. In return, I always glean learnings from the bankers’ insights. 

Celebrate NOBODY in Your Small Business This Week

Celebrate NOBODY in Your Small Business This Week

“Nobody asked you. Nobody told you. Nobody stopped you. You just did it.” At a recent event, I was engaged in a conversation about small business ownership with a good friend of mine, Nancy from Moody’s Analytics. We were discussing the trials and tribulations of small business ownership when she made the above statement. So short, so simple, and so powerful all at once.

If Bankers Want More Sales – Start Here

If Bankers Want More Sales – Start Here

As I work regularly with bankers, commercial lenders specifically, I’m frequently involved in conversations about the pressure of sales growth. Revenue growth isn’t unique in business by any means, but it takes on a slightly different angle in banking. Banking resides in a sales category one step removed from where sales typically resides.

What I mean by that is — most bankers I talk to call themselves relationship bankers. In fact, Relationship Manager is the most common title used for this position. They are set-up very well by the bank. They have branding and fantastic products behind them. They have a great presence about them, — their dress, ability to communicate and demeanor.  I love the sales environment they’ve created. When a business owner walks into a branch, the relationship manager exudes confidence and personality. He’s in the best spot in the world from a sales perspective. But the next moment is critical.

Accountants – Can Your Job Be Done by a Computer?

Accountants – Can Your Job Be Done by a Computer?

In a study published in late 2013 by Carl Frey and Michael Osborne of the Oxford Martin School, 47% of all US jobs are susceptible to the risk of automation by computer. Surprising, it’s not the jobs may you think.

A heavy portion of the jobs listed in the study as ripe for automation included jobs in the accounting and banking fields. The Future of Employment provided the accounting world with the catalyst it needed to evolve its services in an automated world. The accounting profession itself was analyzed to have a 94% chance of automation. While another common profession, loan officer, has an astonishing 98% chance of being automated. As shocking as it seems, the technology market has already set this prediction into motion with fantastic new tools being introduced every month. Products like Expensify, for expense reporting; T-Sheets, for automated timekeeping; and Finagraph, for automated financial analysis.

Darwin Would Love Today’s Mom and Pop Stores – In Celebration of National Mom and Pop Business Owners Day

Darwin Would Love Today’s Mom and Pop Stores – In Celebration of National Mom and Pop Business Owners Day

Survival of the fittest. That’s exactly how I would describe the conditions created in recent history within many American communities. The rise of the mega stores, or shopping clubs, create an intense amount of pressure for the traditional Mom and Pop stores. Lower prices and a seemingly unending amount of choices, combined with overwhelming advertising, make it virtually impossible for a small store to compete. 

Like Charles Darwin’s theory of evolution by natural selection, many of today’s mega corporations evolved from smaller business entities. Through a series of generations, the corporations took on different attributes and naturally evolved to meet the conditions that surrounded it. There can be microevolution where the original organism changes shape or color. Or macroevolution where the old version no longer exists.

How Much Is Too Much Inventory?

How Much Is Too Much Inventory?

One thing I know is that business owners love their inventory.  Every consulting engagement I enter into always begins with a tour of the operation.  I see how the work flows through the office administration, into the production areas, and out to the customer.  The ins and outs of the business are exposed with the hope that inefficiencies can be identified.

Each owner self identifies areas of their operation they envision as the “killers of cash flow.”  They point to their invoicing and collection process, or the low billable hour employee utilization rate.  Rarely do they identify their warehouse as a problem.  In fact, it’s just the opposite.  They stand in the door with pride beaming from their eyes and point to the vast amount of options they have for their customers.  Then they say things like: “We have the best selection. Or you can’t sell it if you don’t have it.”

The Great Awakening of the Small Business Owner

The Great Awakening of the Small Business Owner

In the last 10 years, the most often stated characteristic of the small business owner by bankers and accountants is the lack of awareness and sophistication. Being a serial entrepreneur who prided himself on understanding my company’s financial position and using technology to help me in that process, I usually felt slighted by this comment. What I didn’t understand was that I was part of the “early adopter” group of entrepreneurs.

An article on Capterra.com presented the results of a survey of over 500 businesses who use accounting software. One results stood out in particular. It stated that over 52% of users saw a decrease in financial errors by adopting accounting software. Over half is significant. I thought about the financial wake that’s bound to occur when small business owners are presenting higher-quality accounting information to lenders. Heck, think about the operational efficiency of managers within small business when they have a cleaner set of numbers to make decisions from. 52% means that the early majority of software adopters were experiencing positive results.