Understanding Financial Information
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This document discusses the importance of understanding basic financial concepts for business owners, project managers, professionals, and political campaigns. It provides an overview of key financial terminology like balance sheets, income statements, cash flow, liquidity, margins, and ROI. Balance sheets show assets and liabilities, income statements track revenues and expenses, and cash flow outlines inflows and outflows. The document stresses that financial planning, reporting, analysis, and implementation are necessary steps for running a successful business or organization. Understanding financial information allows one to be proactive rather than reactive.
Understanding Financial Information
- 2. Need not be ScaredWe all should have a foundation in understanding financesAllows you to be proactive rather than reactiveRelevant for almost everyone:Business OwnersProject ManagersProfessionals (Attorneys, Accountants, Consultants, etc.)Running a Political Campaign
- 3. Understanding Financial InformationTerminologyFilling up your toolbox
- 7. Implementation ToolsTerminologyBalance SheetIncome StatementCash FlowLiquidityMarginROI (Return on Investment)
- 8. Balance SheetSection-1: AssetsWhat do you possess of value (cash, receivables, fixed assets, etc.)Section-2: LiabilitiesWhat do you owe (payables, loans, etc.)Section-3: EquityOwners activitiesHistoric performanceAssets = Liabilities + Equity
- 10. Income StatementSection-1: RevenuesTracking monies flowing inSection-2: ExpensesTracking monies flowing outSection-3: Net IncomeRevenues less ExpensesPositive is GOODNegative is not so good
- 12. Cash FlowSection-1: InflowsUnderstanding expected cash coming inSection-2: OutflowsUnderstanding expected cash going outSection-3: Net CashInflows less OutflowsPositive is GOODNegative is not so good
- 14. LiquidityHow much cash do you have?What can be converted to cash quickly?How many days of cash on hand do you have (if no revenues are coming in, how long can you operate for)?MarginMeasuring Profitability. If you have a billing rate of $200 per hour, you are not keeping $200 per hour in your pocket. If you are selling a product for $50, you have inventory costs, shipping costs, etc.
- 15. ROIReturn on InvestmentAlways know what every dollar spent is worth to your bottom lineBe able to answer questions such as:What did spending $10k in advertising do to my revenues?What did adding a sales person do to my revenues?What was the bottom line effect on spending $50k on automation?How did spending $25k in PR increase my visibility?
- 16. Running a Successful BusinessRetail, Law Firms, Consulting, Political Campaigns They are all businesses4 Simple Steps:PLANREPORTANALYZEIMPLEMENT
- 17. PlanningBefore a single dollar is spent on an idea, develop a business plan and strategic plan. Focus your thoughts and validate your vision.Planning includes budgeting and cash forecasting.
- 18. ReportingProduce financial statements on business activitiesBalance SheetIncome StatementStatement of Cash FlowsProduce relevant reports on your business:Page views and sales conversion rates for internet businessesVelocity reports for inventory based businessesBillable hour details for professional services
- 19. AnalyzingWhat are your reports telling you?What are your margins?Assess ROI for monies spent.
- 20. ImplementingWhat needs to change based on your analysis?Always be proactive, but react to what your reports are telling you.