Investment VS Spending
All Money is not the same, in how we earn and spend it as business owners. The focus of today’s conversation on By The Numbers will center around cash outlays or digital distributions, what they mean to your businesses financial position. Depending upon the motive and intent, these decreases to your cash balance at the bank may have a different impact to the valuation of your business as well as how we grow profits. Our chit chat today is all about Spending vs. Investing, Episode 11. Be encouraged as you listen in today as we explore another exciting money topic on today’s show of “By the Numbers” and it means to your business, my business, everybody’s business.
Reason to Listen
We are going to take a deeper dive into the elements of two financial statements, the Balance Sheet and Profit and Loss statements, so that you can begin to understand how the activities impact the investments and spending that you make on behalf of your business. This episode will help inform the business owner/entrepreneur about how cash outlays(digital distributions)affect their operations and owner’s equity, by having the insights presented today will empower the business owner/entrepreneur to fine tune their cash outlays. Optimization of cash outlays, is a key to maximizing business growth and monitoring what we spend our money on, is paramount to profitability and having a tasty balance sheet!
What you need To KnowSpending
Typically represents purchases that are consumed and have no appreciation in value. Look at it from a personal perspective, we consume gas, food and clothing to name a few.
The use of cash but with the intent of gaining on the use, i.e. inventory, stocks, real estate, cryptocurrencies, to name some sources. The motive is different from spending on unappreciated items and goods vs. appreciation in value items in assets.
Both actions require cash outlays but one produces value and the other is gone forever.
Balance Sheet vs. Profit and Loss,
The first thing is reinforcement of the concept that not all cash outlays represent the same thing. When we review and analyze the financial statements of a typical business, we will see money being spent on both the balance sheet and the profit and loss, but there are two different cash stories being told. Both of the statements illustrate the topic of the day.
The net effect of the profit and loss activities impacts the balance sheet in the third section called Owner’s equity, this should be of interest to all of my business owners/entrepreneurs. Why? It’s the determining factor that communicates to all interested parties as the financial health of the business, the owner’s value and investment in the business. The Owner’s Equity section of the balance sheet is really the most important section as it tells the story of how well your business is doing since you first open the doors.
It’s very easy to think that all cash outlays are the same, but from our convo today we discovered that, that’s not true at all. Being in business has some of the same attributes as our personal lives when it comes to how we spend our money. Spending on consumer goods that have no appreciated value such as rent, food and utilities but are basic needs that need to be met. Minimizing that type of spending will allow us more cash available for investing. Looking for opportunities to transform our cash outlays from consumption to investments is the optimal use of our financial resources and the route to gaining business value.
Written by Celia L. Powell, CPA
Celia Powell, consults with business owners seeking to reach their full potential and goals, by using mindset and money strategies with the ultimate goal of helping them maximize their financial resources and create business success.
Facebook, LinkedIn and Instagram @celiapowellcpa
Next week’s show F4.012 we will cover...There’s Only 24 hours in a Day …..Balancing overwhelm and setting boundaries.
Last week’s show Episode F4.010 Cash vs. Digital Currencies, an intro into financial digitization.
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