SHOW & CHAPTER 5: THE BASICS OF FINANCIAL REPORTING - WILLIAM EASTMAN

You need a foundation to build knowledge upon, the ability to create, read and understand basic reports. This entire process starts here - understanding how your business makes money. Today's show is Business Finance 101 - what standard reports are available and what story does it tell.

Show Objective
Given the 3 standard financial statements (Balance Statement, Income Statement, and Sources & Uses of Cash), you will be able to interpret the financial performance of the business and improve future decision making.

EPISODE 21: Summary
​We now start week 2 of the series and specifically how to get a handle on your key financial reports. 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 finding 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.

EPISODE 22: BALANCE STATEMENT
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 acquire assets.

The Balance Sheet divides assets into groups: Current and Non-Current. Current Assets are usually 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 in raw materials, work in process, and finished goods.
• Non-Current Assets includes 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 long term debt that does not come due within 12 months.  This includes car payments...

EPISODE 23: INCOME STATEMENT
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 over the month. This 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 managment of resources,  and performance relative to its industry.

EPISODE 24: CASH FLOW STATEMENT
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. 

• Operations addresses the sources of cash. Investing covers how acquiring assets where acquired 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.

Next Show/Chapter 9: Establishing BEP - Break Even Point

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