 Let's try to this is smart business moves. Hey y'all St. Patrick's Day Eve Okay, what is up with? My window is different now What's wrong with your window? Well in the past You remember how I used to tell everybody you had to pick the tab comments or chat I'll have that option anymore Well, hey Linda didn't eat All that's always here Make a comment so I can see where you're gonna show up for me So you don't have a little bar over on the right that? Leslie just said hey Okay, I see what it is. It's There is just new functionality. Hey Christian love that name for the record. I just love that name Do you have your second wonder hooked up yet? Yeah, I haven't hooked up. It's at a different office Do we really need to do the go fund me thing to get your second monitor? Okay, the second monitor is not the it's not the cost You know how big my monitor is right? You remember like 42 inches. Mm-hmm I don't have room on my desk For two monitors because I have a cat over here on one side I have my monitor and I have a plant and My my lamp You can't get any work done if your cat and your plant isn't there And getting more Aesthetic and Get more desktop space is it really an option either? Well for Why do I need the second? y'all are you seeing a Lack of engagement from me because you realize how much more productive you could be how much more effective You could be how much value you could be bringing to smart business moves in our audience here If you just if you can convince me you you you send me a monitor Send me a monitor. I'll hook it up. You've got a monitor and you just don't have you got it You got a plant in the way It's a beautiful plant though Tom, you wouldn't want me to get rid of this plant. It's beautiful Leslie says you need another monitor. Oh Leslie why why why why you gonna be like that? I have no room You want me to get rid of my plant so pretty the Sam's gonna be here You want to Talk about what we're gonna be doing for the rest of the week and the week after in the week after I want to talk About tomorrow let's talk about tomorrow while I pull up our schedule for the next couple of weeks Okay, did you remember me if you're gonna pull up the schedule? Did you remember to switch out my? Next this week and next week, of course not but I can do that Reminded ya. All right You two Y'all Okay Tomorrow we are having a foundation's alumni reunion So excited about that actually and we're going to be celebrating St. Patrick's Day at the same time so the reason Foundations alumni is for two reasons one is first we we miss them We want to chat with them. We want to find out what everybody's been up to and And and we just want to hear what's going on with them And and see that but second thing is we also thought that it would be valuable for you all You'll be able to hear what is working Where are some of the problems? How are people overcoming just what Tom? Well, this is that is a really cute cat. So I see why you had to post that up there. Yeah Yeah, I didn't even nose the cat. It's all about the monitor It is a cute cat and it does have really cute cat. She has In her office So anyway, so that's what we're gonna be doing tomorrow We are going to be talking about what's going well. What's not where struggles are What people have figured out what they're doing really well. What's working and Hoping that sharing that with y'all is gonna be insightful and helpful Uh, if you're coming tomorrow Tom is also going to be practicing for the first time Right Tom first time streaming us on Ring central Yeah Robin yes, I'm with I'm with Robin Tom long cable. You send me a cable long enough to go from Your office to mine For the 3000 mile cable. Yeah, good idea. That's a good idea Robin. I like that Don't leave around I was gonna say I really love that idea We're we're gonna be experimenting with the technology We want to use to be able to do zoom calls that we'll be able to stream to you know our facebook pages so For smart business moves we're moving in a direction And tomorrow's the first time that we're trying and if it works tomorrow, we'll be doing it more frequently with with Our our five o'clock eastern calls where If you want to you can join the zoom meeting and actually be part of the show Or if you want to just watch us on facebook or youtube the way you currently are now You can do that too and be a spectator so you can Be on the field or you can be in the stands. Is that is that a good analogy? Yeah, that's actually really good So our lizz you are a real sunshine. Thanks leslie See tom already sunshine. Yeah, awesome. You would be with two monitors though. I think I would just be distracted like How am I? all right, so Yeah, one of the things that I really love about this idea with with zoom is Like that it'd be so awesome to just be able to chat with you guys so much of the time it's like tom and I are chatting together and then We like reference whatever y'all are talking about versus being able to talk with you We we've known this for a while, but it's not as easy as it seems to just be able to go live And do like a ring central call and have all the additional functionality So luckily we have tom who loves tech and he He he literally said today you guys. Well, I kind of want to do it the hard way Because I like to See sometimes I was just thinking how well the single path to accomplish things that personally would die At least one of those but wasn't doesn't necessarily process same as everybody Super achiever. Yay. Thanks. See I've seen it's on my side Being able to do that with only one monitors amazing. Just think about awesome. You could be with tom. I'm turning them. I'm turning them tom I've got four monitors and I still can't keep up I yeah, I do have two monitors in my office at You know at at work I actually have my laptop and then I do also have two monitors, but I The two monitors is harder unless I'm doing something where I need to go back and forth then I will And actually on this monitor. It's so large that I just split the screen So it's like having two monitors for me most of the time because it's so huge It kind of reminds me of when I do it when I split my screen it reminds me of Sarah Martin If any of you have ever seen what she does her monitors You know, normally your monitors are longer or wider. I guess then they are tall, but she flips hers up on end So her monitors are very tall And and narrow And so when I split my screen, it's like I have two tall narrow monitors like sarah martin and I mean who doesn't want to be like sarah martin. Come on now Sarah sarah thompson Oh, yeah, sorry. Oh, sorry. So sorry, sarah. If you accidentally see this. Yeah, sarah thompson Yeah, she's had her husband for years now. You think I would have that together right now All right so This is our schedule for the next few weeks All right So so I guess today is the uh 16th the St. Patrick's day It's the what? St. Patrick's day you've oh, yeah We're going to be talking about uh, how to make sense out of financial statements I'm gonna love that I'm glad he's here Okay, and tomorrow we already talked about the foundations alumni reunion I think I did say clearly to wear your st. Patrick's day swag You're going to want to have that swag. I promise Uh, so bring it And then the next day is me on necessity of consistent ongoing training and education. So remember We are bringing um our Some of our foundations topics To smart business business moves, but in a very truncated fashion And also without the workshop functionality, right? We're going to send you guys back and tell you to do stuff but We're hoping to be able to give you some some good good actionable information And give you a sense of what foundations is like All right, and then next week we're doing profitability. Yeah That's the plan Yeah um sco and plain english derrick's going to talk about which is awesome And tom you're doing what is this? Can't even say it ppe price pay price productivity and efficiency. It's a model to maximize profits Are you going to be able to do that justice in the limited amount of time that we have? We're going to go a little bit faster than we did when we went through kpis for money at the beginning of the year. It'll be you know, we're doing Much tom Well, I'm going over, you know, we're doing financial statements today and That's true. So You know, this is this will give us the gist All right, and then um on the 24th improving recruitment to improve retention If y'all are like everybody else right now in our industry, you're struggling to recruit and retain team members so we have some new strategies and some new ideas and some new information to hopefully help and um add to what you're currently doing and help you to Make some little tweaks there And then the next week, what are we doing tom? client management I like that Derek says sales is a teachable skill Um It is totally a teachable skill But a lot of times people don't think that they do think it's a soft skill. You either have it or you don't So I like that. It's going to be interesting to see what he talks about Oh, that's one of my favorite topics tom. You have to explain it though That stacking revenue of high frequency recurring revenue client No clients and that's where the revenue comes from. Yeah, it says You know part of the model that we've been talking about for for a while and it Fits right in the whole idea is it's much easier to scale a house cleaning business off of recurring revenue so How do you take a lead and not only turn it into a sale but turn it into A client who wants you to clean their home on some type of recurring basis and not only recurring basis But hopefully at least on an every other week basis so Part of it is the the whole process of turning them into to a customer and then getting them to Use your service on a regular basis and then get them to stay with you to maximize lifetime value So there's a whole strategy behind that. That's what we're talking about So it does sound like it's similar to some of the information from the kpi Workshop that we just recently did but that also sounds like it's got some new stuff in there. Yeah Yeah, it's going to be more the of the how to and some of the finer points of you know A lot of how you position your company everything from your website to your marketing material to the expectation You set with it with a prospect when you are you're engaging with them, you know on the phone Or however, you're communicating with them can influence What type of client they become so it's how to to everything that that that message that you're sending from your your branding to your communication a strategy to Presume and set the expectation that you're going to want us to clean your home on a regular basis for a long time Hey, okay Get what you expect to get Boy, uh, we and we have really been hammering on this idea of setting expectations Over the past. Well, I don't know at least six months You know, we we were really hammering on the expectation piece while we were really Hurting with the coven situation, right? It was critical that the customers know what to expect and the employees know What to expect which brings us to my topic um on Actually, it's my birthday. I just realized that Okay on my birthday. I'm going to be talking about controlling your quality standards. That's kind of cool um I think you guys all know what that means. I don't think I have to go into that but I do notice that the next day Is tom's birthday and you guys see that there are no comments there and that's because uh The first on tom's birthday and also on march 25th We have sort of surprised things that we're going to be doing. We are Still working on some fun things that we can do that Will also create value not just you know, not just frivolous stuff so One thing I love I don't know if you guys love this in your situations If you guys have anybody that that this is good for you I love having my birthday before tom's So I love that So if tom celebrates my birthday in a really great way Then you know, I'm going to outdo him and I'm going to do even better on his day And if he does nothing for my birthday tom better get a hat Point the point, huh? And if he does nothing I could still outdo him by just wearing a little But tom has my favorite birthday of all time I was so irritated when I was growing up that my birthday was on march 31st instead of on april fool's day And I think it was wasted on you tom. You don't even play april fool's trick trick It maybe it's kind of shaped me, you know over the years, you know I mean there's a lot of other kinds of jokes and things that go along with having your birthday on april first I might be a different person if I was born on march 31st. She doesn't ever know how things could have turned out maybe you maybe you would be um I'm talking to more people and spending more time out and about and visiting it I could be I could be a social butterfly Yeah I'm thinking not so I'm not thinking so Probably not no probably not. All right. Well, we better let you get going tom. It's already almost 20 after Here How do you like this deck and that doesn't look good Did you guys notice tom just put this new deck together? Uh with the cleaning profit builders on there. I like it. I think it looks good I'm doing the same thing for mine tomorrow or on thursday Since I like it so much So we're gonna talk about making sense out of financial statements So I always say financial statements. What are we talking about? We're talking about three different types of documents The first is the income statement also known as a profit and loss statement And anybody who's paid any attention to what we've been doing here, right since the beginning of the year Know what a income statement or p&l statement is. All right. So p&l is simpings profit and loss y'all right It's that document that has the income at the top Subtract expenses from it and it gives you profits and it's a little more complicated than that if you remember from Days and weeks past, but we're going to go over that here in just a minute a second financial statement That is important for your business that doesn't get nearly as much attention and discussions like this are you know Just you know managing your business from from from week to week a month to month. I don't I don't think My experience working with a lot of a lot a lot of other small businesses a lot of small A lot of cleaning businesses that that that it gets a lot of attention as the balance sheet The balance sheet has a whole another set of information on it a balance sheet talks about assets liabilities and stockholder equity So the income statement in terms of the actual profit from the income statement Flows up and shows on the balance sheet The balance sheet has a whole another set of uses that are very important to to growing a successful and Building value over the long run in your business And we'll drill in that here in a minute as well And the third financial statement that you'll need to know or you should know and is useful to you We're going to go going to share some here is a cash flow statement or statement of cash flows And this is basically just talking about cash the actual hard money you have available to you And it's the cash that you have to pay debt expenses In funded investments, and it basically shows you The cash that you have at the beginning of the month and the cash that you would have at the end of the month and What you have at the end of the month basically is what you have at the beginning of the next month And he used it to make sure that you've got enough money on hand to do the things that you need to do And what to do with inside of your business So an income statement and a statement of cash flows is over a period of time a balance sheet is a snapshot Where it's just at this point in time and you can pick whatever period of time you want but It doesn't appear it doesn't cover a period rather It's it's at that instant that that you run the report. It shows you your assets liabilities and equity And whenever you hear a company talk about generically or your account or whatever your financial statements It's basically a combination of these three documents Um, a lot of times your your cpa might not do a cash flow statement for you It's a very least though. You want to make sure that you have a have a relevant income statement and Balance We'll talk about that here in a minute I'm sure a lot of you are like me and the balance sheet is just confusing as hack. It's like I have to have the balance sheet Um explained to me or I have had to have the balance sheet explained to me multiple times What happens to me with the balance sheet is I learned about it. I learned how to use it. I understand it. I'm like, oh, okay It's so good. It makes perfect sense. I get it Talked to me about it in three months and I'm like Yeah, balance sheet. What is out again? So I haven't I mean I've sat through classes with you tom and I've I've watched you explain it I love it when you do. I always get it But even right now I feel fuzzy on the balance sheet. So I'm super excited to Do It's uh, it's not a natural thought process And After you play with it for a little bit it starts to click And what I want to show you is how these three documents kind of relate together and Like if you look at balance, she's like, well, where do those numbers come from? I'm going to try to show you that To to some degree anyway in terms of how all those numbers come together But let's get some of it. Let's get some of the easy stuff out of the way We all know what profit and loss state one of the income statement is because of what we've been doing in weeks past where You know, you've got the revenue. That's the money Your your your clients pay you you've got your cost of good sold Which is the variable cost providing your service There's an acronym that that that we've used a lot to describe that Your loaded direct world Loaded direct payroll to revenue LDP are Right. That's the the percentage that we use to determine that it's a good proxy It's a very good proxy for cost to get sold much easier to calculate Gross profit. That's the amount of money that's left over after you Pay your cost to get sold or in in our case, you know, for the most part our Loaded direct payroll And out of our gross pay our gross profit rather excuse me We pay our operating expenses, which are the fixed costs and what's left over is our net profit So net profit gross profit minus operating I feel like we've done that so much if there's anybody here that Wants us to drill in that we can No, no, we can't I'm going to send you back in time To the last There's some some videos that you can watch that's a lot of them and you can get really in depth on it. So So I want to be able to get through the foundation step one thing I want to point out on on on the p&l profit and loss statement that I see really I see this a lot More than 50% of the time When I'm looking at somebody's p&l what I see is revenue at the top All their expenses lump together and profit at the bottom And their direct payroll is mixed in with their office payroll And it's all showing up as expense and We're not separating the variable cost from the fixed cost and when you do that Go ahead. I do want to say real quick So Tom's talking about this remember we're talking about foundation So one of the things that happens at foundations is that everybody brings their quick books Information so that some of the stuff that tom is telling you about This is when we talk about the workshops. This is one of the things that has to get fixed Right, we have to we have to be fixing some of this stuff The reason why he's saying he sees this all the time is people at foundations bring their quick books with them So I just want to tell you that because some people I know are talking about coming to foundations and that's a scary piece Yep, you got to bring your quick book. We'll help you with us Leave you'll be like hallelujah I think more tears are shed in this And this part of the program than any other program because people are just like I never thought I could get it I love that So you don't want that if that's the way your your p&l looks that doesn't have a whole lot of value to I don't want to say it's completely useless, but there's not a whole lot you can do with it You can make much better decisions and make a whole lot more money a lot more profitable if You have your revenue and then below that you take all of your cost of goods sold Which is basically your variable expenses Your direct labor cost and and associated costs And you in quick books actually you don't code those as expenses You tell quick books that those things are cost of goods sold and it separates them differently on the p&l So it'll subtract cost of goods sold from revenue and you'll get a gross profit And from there you subtract your operating expense to get your net profit Once you do that you can do calculations to figure out. What is my breakeven point? You can do calculations to figure out if I can be just a little bit more Product productive and get my cost of goods sold to revenue down by a percent how much more profit I'll be making You can coach your teams and the people doing your scheduling and look at what rate increases do for you I could go I could spend the rest of uh Our hour here just talking about all the wonderful things you can do if your p&l Looks like that whereas if it looks like what it looks like under the x You can't do anything with it. So said simply it would look like this with the revenue cost to get sold gross profit operating expense net profit You guys know this we've done this week over week after week This is just another picture of the same thing you got you guys are all over this um, so this is kind of an example um $100,000 in revenue Direct labor is the biggest part of cost of goods sold But there's some other things here. You got some insurance and throwing a little bit in for For like reimbursing people for mileage and so forth and a little bit for cleaning supplies total cost of goods sold 55 So 100 000 subtract 55 000 for cost of goods sold that gives you a gross profit of 45 000 dollars So from there you separate your back out your other expenses get total operating expenses of 30 000 30 from 45 Gives you 15 000 or 15 percent pre-tax profit on 100 000 dollars Benchmarks for each one of these cost of goods sold can be you know, we're from 40 to 60 percent operating expenses You know 30 to 40 and this can vary a lot depending on your business model as we've discussed in weeks past Income 10 20, you know, I've seen people 25 even flirting with 30 percent in some cases when all the stars line up well And we're talking about employees here pretty much because things the numbers can look different when you've got independent contractors Yes, you know, this is this is built on a uh employee based model yeah So if I got a if I've got uh operating expense of 30 000 dollars and if I know that 45 cents out of every dollar that I generate is uh going to be flowing down to cover these expenses and profit I can take that 30 000 And divide it by point four or five and come up with a number and that's my breakeven point And I don't know what that is if I don't have my variable and operating expenses broke out separately and We did that here in weeks past Somewhere It's rate increase breakeven I'm gonna heck with it. I'll just do it again so There it is rate increase breakeven. I see it That's the rate increase that's the rate increase to your left two one more. There you go Yeah, that was a different calculation though. That was how many customers you could lose after a rate increase and still break even But if I know That my I'll blow this up if I know my operating expense is 30 000 and if I know that my um if my gross profit percentage It's 45 percent and with that if it's my gross profit percentage it's 45 percent that means my uh Cost of goods sold to revenues 55 percent. Does that make sense? So if I take the uh my breakeven revenue is 30 000 divided by 35 percent or 66 600 66 dollars and 70 cents So at the beginning of the month, you know, I'm I'm I'm making money. I'm not making money Well, it depends what your revenue is right and if I know that my Cost of goods sold is always a percentage that expense is always going to be a percentage of my revenue And if I know that 30 000 dollars is my operating expense to fix them out Then I know that I got to get at least 66 666 660 60 cents to break even and after that 45 cents out of every dollar is going in my pocket Can't do that unless your p&l looks like this I'll What those numbers are no way of figuring out Or We can't do anything with it if if if your p&l's all lumped up where your variable and Fixed expenses are together and all treated as expenses. You just can't do anything It's not a tool at that point then it's just information and you can't use it as a tool so and that's that's kind of the point here is That these financial statements Are tools to help you improve your business and to be your most profitable So Don't create situations where your tools are broken So We said our revenue In the example was 100 000 dollars for that month, right? We would know that if that was our break-even revenue then I take 100 000 and subtract my break-even revenue from it. I got 33 thousand dollars that Is has potential going to profit and 45 percent of that is going to profit. So if I take that amount Let's do this times 1.45 That comes out to be 15 000 dollars in profit and That's what we said down here Make sense. Yep Make sense so Why I know we're not on zoom so it's hard to ask questions, but does anybody have any questions And normally this would be more interactive at foundations. It's more interactive because everybody has their um Their p&l up on the screen while tom is teaching and he's asking questions about so what's your direct labor? What's your direct labor and trying to figure out how we can Work with whatever Is being seen and a lot of times like tom said more than half the time Everything's all lumped together. So the first step is let's Get everything separated out and get the p&l Structured the correct way But if you've got like a bookkeeper or a cpa or somebody helping you with this What you want to do is go to them and say I would like to have my cost of good sold separated from my operating expenses. So it looks Like this It looks like this Take a screen share In and we sent this out Linda absolutely you can and That's the recommendation. Yeah This is not hard to do in cookbooks You can take all your variable cost and code them as cost of good sold because a lot of times Everything just says it's an expense. So you want to change? The account type from expense to cost a good sold level separate out It'll be magic so Pretty obvious why a p&l could be a pretty useful tool if you set it up the right way, right? Yeah That's my thing. I I love the p&l. I feel like Super useful, you know, if I was Person like you are Tom I'm I feel like the p&l is super awesome because even for people like me It it's so clear and it gives such good information That's really usable they and you don't have to be the smartest person in the room I mean a lot of times people are like well, Tom's so smart Of course, this stuff is easy for him, but you don't have to be the smartest person in the room. I mean I get it right. I can use this. This is awesome And it's so helpful All you have to do is be able to understand it and then it again becomes a really good tool So I love the p&l play around with quick books a little bit do yourself a favor without any real you know Deliverable objective other than I'm just going to play around and see what I can do with it Go to reports Pull up the I think they call it the income statement. They might call it p&l. I don't remember. I think it is It's same report. Whatever they call it in quick books There's all kinds of filters at the top that you can play with in terms of Picking what time frame you want to run the report and you can also pick what periods you wanted to present the information You can just it'll present a total So if you want to say I want to look at my p&l for the last 12 months and give me a total it'll just give you One set of numbers or you can say I want to see it Over by quarter So it'll break out your first quarter from second quarter to third quarter the fourth quarter to see how the numbers are Changing quarter to quarter It'll let you do it by month so you can change it by you know, see how it's changing by month It'll let you do it by week Play with that and then it's got filters where it'll do percentages It'll do variances too. Like if you're doing like months And you want to say I want to see the variance month over month It will show you what that number changed month over month It'll do variance what will show you how that number has changed from that same month the year prior Or i'll do percentages will show you what those all the numbers are as a percent to To revenue for instance just play with it and you'll see things and you'll start asking questions Well, gee that must be there for a reason. How do people use that and ask your accountant ask your cpa Ask us, you know, we'd be we'd be glad to help you but it's it's A wealth of information and what you can do with this especially if you're playing with it in quick books and also Tom's talking about play play with your quick books and For a lot of people out there. That's like. Yeah, I'm never doing that I'm afraid to mess something up or to ruin things. He's not saying just go in there willy-nilly what he's saying is Go into the reports section and run reports any report. You can't mess anything up by doing running a report Nothing gets impacted. You could run reports all day every day every single report You could ever think of and it can't mess up anything So that's what he's talking about go in run every kind of report you can think of Or any report that you're like, what the heck is that? Why would I even care run the report? Look at it try to figure it out And the reason why he wants you to do this Look at it. Try to figure it out on your own is when you do that You're going to understand it so much better You doing it. Well, I'm gonna use my snowboard my snowboard analogy again Right. I can watch all the videos on snowboarding. I can watch tom snowboard I can watch less lee snowboard But until I Pop the board on my shoes and jump up on the mountain I don't know how to snowboard and I'm never going to understand truly what it's like to snowboard until I get Snapped into my board and get on the mountain. So that's what the reports is snap in and Take a whirl run all the reports you can think of How many people tom have we have we worked with? That the number one thing they don't want to talk about they don't want to deal with They're afraid of is quick books and then after foundations. They're like, I love my numbers now I love looking at I love doing that It's a great thing 90 it's it's it's I don't know The the software quit but it's what it represents It's the financial shape of my business. Am I do I have money or not? Am I making money or am I going broke? It's You know, it's like I don't want to go to the doctor because I might be sick and I don't want to be told I'm sick and it's like you are what you are and you need to Figure out what you are so you can become what you want to be Yeah, because there's medication for almost every kind of sickness Whatever whatever Whatever problem quit books tells you you have there's a solution for it Yeah, you can identify the problem the sooner we can start taking the medicine to make it better Because if you don't Do it I mean taking it just one step further If you don't go to the doctor Sometimes you let things go too long until they can't be fixed So don't wait just jump on in there and check it out because right now That's the perfect time. We we've got the answers. We got the medic the medicine for you So we're gonna move along here Another version of of a p&l and this is kind of a different perspective. This is a little more complicated But still the same thing you get your income you got cost of goods sold you got your gross profit here You got operating expenses You got all your operating expenses added up you subtract Your operating expenses from your gross profit it gives you your net income or your net profit Your income minus your cost of goods sold as your gross profit So that's what we're showing here that I've got income of 34 almost 35 000 I've got cost to get sold at 15 I take the 35 subtract the 15 it gives me almost 20 See, I'm just rounding numbers off in my head. I can't do the math To the penny, but this is almost 35 000. That's almost 15 000 35 minus 15. This is almost 20 000 make sense It does Right minus operating expenses this product. That's the net profit. So I got 20 000 minus 11 500 That leaves me about 8500 here And so remember Tom was talking about those reports. This is a report that you could look at you see how on the right hand side You have you ever wondered how do people know what percentage they're spending on On office supplies? How do people know that? That's how they know that it's just on a report They don't have to do anything special They just say this is the report that I want to look at and then they can see how much do you spend on Breakage and damage. Oh look that's on here. I mean you have to be tracking the things that you want to look at But you could if that's something that you're like We break a lot of things in our company. I don't know. I need to be tracking that you could And in quick books if you want to know what these numbers are as a percent to income There's a filter you can just click on it and it'll do this for you and report for for the pnl so you don't have to Do these calculations yourself and quick books will do it for you Talk about a balance sheet balance sheet complete the separate report um You know the the pnl is Where we start it's the most I believe it's the most important report as as as operators of cleaning businesses If i'm stuck on a desert island and I can only have one financial statement. I would want it to be the pnl yeah But a balance sheet is something that you should look at from time to time You should talk to your you know your your cpa. There's some things on it that are important that you need to know and understand It's a snapshot in time of your company's assets liabilities and owners equity So Tom is mentioning the snapshot in time you guys Tom can you explain why that's important because it's a really big deal About the balance sheet you never hear him say that about pnl You don't hear him say that about the cash flow. You'll only hear him say that about the balance sheet If I run a pnl for last year And compare it to the pnl for december of last year The numbers for the entire year are going to be a whole lot bigger because i'm adding up Income and expenses and profit for an entire year as opposed to just a month Okay, so for a period of time A balance sheet is a snapshot It's like you don't add your assets up. It's kind of like is think of a balance sheet is your weight So I weigh myself every day and that's a snapshot in time It really isn't relevant for me to take my weight every day and add it up and say my total weight for the month of March is it was some really big number, but it really doesn't matter what matters is What I weigh at that instant in time Well, does the average matter because I might want to know what the average is of my weight over Of course of a month or a year would that matter with the balance sheet? You can do that and you can run your balance sheet for various snapshots in time Because really, you know you weigh yourself every day each one of those is an individual snapshot in time and you can Average those you can take variants And we do this i'm going to have an example where you look at your balance sheet at the end of You know december and compare it to your balance sheet for at the end of january to see how some things changed What you don't do is take the numbers off your balance sheet for 12 months and add them together And so this is my balance sheet for the year what you can say is my balance sheet Look like this at the beginning of the year or the end of the year or the middle of the year yeah P and l you add the numbers together And if you do it for you know two years the numbers are going to be bigger than if it's one year But a balance sheet is just stepping on the scale at that instant Yes, great that scale analogy is really good really really easy to understand So assets those are the items that your company owns that can provide future economic growth An asset you know One of your biggest, you know assets is cash Well, you know how much money do you have in your your your your checking account? um You know vehicles are if you buy your your your vehicles they would be consider assets you know certain pieces of equipment if You buy a piece of equipment for the expectation that's going to last longer than 12 months That would be treated treated as as an asset computer equipment stuff like that Uh liability is money you owe So if I buy a car that has a value of $20,000 and I pay $5,000 down Then theoretically I've got a liability of $15,000 I might be financing the rest of it over five years The equity that I have in that car would be $5,000 less depreciation because it really isn't worth $20,000 anymore, but So the assets are the things that you own the liability is the money that you owe And you take the difference between the two and that is owner equity That is the real value in your business and that doesn't mean what your sales price is if you're selling your business That's a completely different calculation But what you can do is look at your balance sheet over various snapshots in time And if that owner equity keeps going up, that's telling you that you are acquiring more assets or You know getting rid of liability and you're creating more value in your business If you keep doing that over the long run, you're going to have a more valuable business And you're going to be a wealthier person wealthier business owner This is what a balance sheet looks like and You've got your assets at the top and all of these things here are various types of assets you can see All your bank accounts is an asset and you see we've got two columns here One is december 17 and the other is january 18 And these are run at the end of the month typically So the end of december these were the numbers into january these are the numbers And guess what the end of december is the same as the beginning of january for these purposes So basically the difference between these two columns is what happened over the month of january Same as you know, I weigh myself at the end of december. I weigh myself at the end of january I take the difference. That's how much weight I gained or lost over the month of january That's january. We gained No, you lose it over in january you gained it in december or you're dying, you know So a couple of things to look at here Assets of cash assets could be considered accounts receivable. That's money people owe you You know, you you claimed and you bill them and they're gonna You know pay you, you know next week next month or whatever got this thing called undeposited funds That's important. That's money that's been paid to you But it's in the form of a check or a credit card that's being processed and the money is not in the bank yet You don't want to say it's in the bank, but it's there. It's coming. So you treat that as an asset You take these two green numbers and you add them together That is your total cash and this shows up on your cash flow statement. I'll show you that in just a second Um From a cash standpoint Well, let me let me do this. So yeah, I got my assets up here. I got my liabilities down here And this is money you owe Current liabilities are moneys that you owe within the next 12 months long term liabilities of moneys you owe over a longer period of time so things like car notes if you got a If you own any property a building or something that you're paying off of our long period of time All those are considered long-term liabilities. So I've got assets of 140 liabilities of 158 Remember assets mining this liabilities is total equity kind of negative equity of $18,000 almost 176 That's not unusual because you know a lot of times Small businesses wind up, you know borrowing money to get things going and making investments And you know, you can get to the point where you've got negative equity That's not necessarily a terrible thing What you want to see though is that negative number getting to be a smaller negative number over time if you notice that In january that negative 17 goes down to negative nine so Um, that's a good thing And you can see it's a good thing Over here on the third statement that I want to show you is the statement of cash flows um operating at oops in basically you add all these numbers up together and that basically tells you how much cash you're generating for the period and If your cash is going up over the period and you can see that down at the bottom here where um At the beginning of the period you had $18,000 in cash and at the end of the period you had $17,000 in cash You basically Spent a thousand dollars more in cash Then then then you actually collected doesn't mean that you were losing money. You were making money Because all these are tied together here if I go back to my p&l I made $8400 As you can see here net income $8400 so my p&l said I was making money but My accounts receivable Went up by $5,000. You see I got a negative 5400 dollars I go to my balance sheet when I look at my accounts receivable It was people owed me $2,800 at the beginning of january. They owed me $8,200 at the end of january so something happened and You know people owe. Oh this company, you know 6,000 are not quite 6,000 5400 dollars more At the end of january than the beginning of january Does that make sense? Yep dollars are kind of kind of tying it together here these two green numbers together give you The cash at the beginning of the period if you remember The difference between the long term liabilities here Basically give you the cash it takes to cover your financing activities That's basically the principle you're paying on your your car notes and stuff like that You add all these numbers together here and it gives you this number of Negative 170 dollars basically so 170 negative 170 minus negative 9 so basically this company is breaking even for the most part it lost 170 dollars out of operating whatever when it was covering Didn't really lose it, but when it was you know Subsidizing the accounts receivable and some of the other things up here But then it had to pay the principal on some some long-term notes and it wound up Spending 1,100 more in cash than it actually had Okay, how many people how many people are following the statement of cash flows? And how many people are thinking my I might need a little bit more information here We don't have a ton of information. So if you need more don't worry Um that you know what we have ways of getting more information to you But if you need more let us know Tom I did have I know we're kind of tight on time But one thing that I know messes with people a lot Is why is the total assets? Why does that equal the total liabilities and equity? I think for a lot of people that's confusing because When you're looking at your p&l the number at the bottom is like the answer But that's not how a balance sheet works well In a simplest form pretend you're buying a car and that's the only asset you have Okay, and you Pay 5,000 down. It's a 20,000 dollar car. You give a 5,000 dollar down payment and you're financing the other 15,000 Okay, so the asset is 20,000 dollars. The car is the entire Value of the car and it's your your it's your car and it's worth 20,000 dollars. Yeah You own 5,000 of it And that is the equity if you will the owner equity and the bank owns 15,000 of it. That's the liability right But it feels like my car Well, it is it's your car and you and the bank own it together you own 5,000 of it the bank owns 15,000 yeah All right, and so that's why these numbers match because All the numbers all together still have to add up on both sides so Ideally you want to see your You know like working your liabilities down. You want to see, you know, your your assets going up. You want to see your um, you know equity improving month over month No, there's exceptions to that Strategically you might be making investments in your business that are going to, you know Return, you know give you bigger returns in the future But the balance sheet is important to understand how these numbers work and how they tie into the statement of cash flows And this is really important if you constantly see month over month that the ending number is less than the beginning number That's telling you that one day You're not going to have it a cash left You got to figure out, you know What do I need to do next month to make sure the ending number is bigger than the beginning number? And in this case, I would say well, gee whiz. What are the big negative numbers up here? So you can get accounts receivable I need to pick up the phone make some phone calls and get some people who owe me money to pay me So next month this number is bigger than what it was at the beginning of the month so these when you are selling your business or buying a business but For most people they're thinking about when they're selling their business It's important to have these these you're going to have to provide all of these financial documents And so it's important that these numbers look the way you want them to look for the potential buyer Because if they see that that number keeps getting smaller and smaller They also don't see this as a strong company and if they see that the equity is not getting bigger You're not getting more equity Then they're they need to know why were you investing? What were you doing? Why where? Where where's that? So it's important that you look at all of these so that you know what your position is not just for yourself but also to the bank to other potential investors and Also for yourself, but so that you know how to Move forward. This is why you do this You know, it's not about how many homes you can You know, it's about building value in your business. It's about building profitable businesses and is through You know understanding having having a p&l that's structured properly and understanding what your balance sheet is telling you and are you growing equity and Is your cash flow? Healthy, you know, is your cash flow at least staying constant, you know, you know losing cash month over month those are those are to know The hour tomorrow is the st. Patrick's day alumni reunion Zoom it's gonna be crazy. We're gonna have green beer Of course bring your green beer. Absolutely. That might count in your favor Am I Yeah I like when you have a little beer too. You're even funnier Okay, we'll see you guys tomorrow five o'clock. Bye. Bye y'all