What are the three financial statements in business?
Amazingly most who do not have a Finance or Business background struggle with this question. And these individuals fail to see the future scope of looking at these Documents produced while in the course of business. Most small businesses rely on sophisticated Software to do their books. And I have even seen a Junkyard owner use a simple checkbook register for his sophisticated software to control profits and losses of his small empire. LOL
I can not stress “HOW IMPORTANT IT TRULY IS FOR A ENTREPRENEUR OR Anyone in business to sincerely go take a accounting course online or at a community college.”
-Big 4 Accountant Partner “MY GOOD FRIEND” John.
One thing is for sure? If your not using these statements in your business? Your missing critical finance intelligence and future opportunities. These are the three Financial Statements every Entrepreneur or Business professional needs to become very intimate with.
In conclusion for this short post. Make sure your being educated by a Accounting course. Taking a basic Accounting course will change your business career. Because it did mine. Thank you for reading below is a Basic Accounting Course Video for your future success.
Since your likely in business, a Business professional, or a Entrepreneur who is researching to find more information about the meaning or differences between CAP EX and Maintenance Capital Expenditures? I have great news for you. I am willing to help answer this question for all you Google Searchers. Today’s lesson will be directly about a particular line on your Investing activities cash flow statement, Operating Expenses details, and Balance sheets.
So everybody if you have not yet taken basic Accounting classes? Your likely like me and studying as you go. It’s a ongoing challenge. However you have no excuse in todays online information super highway and access. So in the spirit of sharing cool new Accounting information I discover? And for the fact I find myself implementing this new knowledge in cool ways. Let’s talk about today’s latest topic I discovered while researching what is Intrinsic Value in Investing . Which by the way is an entirely different topic in it’s own right. Now on to the main event. Maintenance Capital Expenditures.
What is this “Maintenance Capital Expenditures or CAP EX”?
You don’t need to be an Accountant or business superstar to run a small time Lemonade Stand in your neighborhood. So as you begin to sell lemonade? You will likely have cashflow on the balance sheet. This is where things become interesting.
Today we are talking about financials? I would love to detail what the line on your Financial Statement that say’s Maintenance Capital Expenditures.
When we look at a company’s cash flow statement which you should know “ENTREPRENEURS!” you will be looking for the line CAP EX or Maintenance Capital Expenditures.
Please don’t overcomplicate the info here. However when reading a Cash flow statement you will see a line called Capital Expenditures. It’s the exact same thing as a Maintenance Capital Expenditure. Cap Expenditures and Maintenance Capital Expenditures are the same thing. Often times I do see people who confuse CAP EX with Maintenance Capital Expenditures. Don’t let this confuse you. It’s the same.
Here are the two classifications that capital expenditures can fall under.
When
Maintenance CapEx: Is the required ongoing expenditures of a company to continue operating in its current state (e.g., repair broken equipment, periodic system updates) Operating Expenses.
Growth CapEx: Is the discretionary spending of a company related to new growth strategic plans to acquire more customers and increase geographic reach
According to a friend at a local Regional Law Firm and as TAX Attorney and Accountant,
An income statement reflects operating expenses incurred during a period of time.
Capex is considered a long-term investment, rather than an operating expense, because it has an economic life greater than a year (unlike operating expenses).
In conclusion in today’s lesson if you are running a Lemonade stand during the summer while teaching your kids the proper way to expense a business? I hope you would now clearly see? That Capital Expenditures and Maintenance Capital Expenditures are the same and they are for all the little things the business needs to operate and create free cash flow in the simplest of terms. Stay hungry, stay curious and be fearless when walking among Captains of Industry.
If you are a Entrepreneur, Accountant, Tax Attorney, Businessman or Wealthy Individual you already likely know what the 6 Assets you should list on your Financial Statement? Great! But if you don’t know? Maybe this is an article you should read. Because I am going to dive in and share what these 6 Asset classes are?
The six asset classes you want to include on your personal Financial Statement is not only Real Estate property income. But it’s also other income streams like Stocks, Bonds, and definitely NOT your home. We will dive more into this later. You will want to stay tuned because I am preparing you to become a Financially Literate confident business player.
Ok So I appreciate you showing up and reading my Blog post, I do believe I am beginning to have a few heavy hitters from Wall Street read from JP Morgan. I appreciate you guys. 100% And I Thank you. So back to business here. What are the 6 types of Assets Accountants and Business Personalities list on their personal Financial Statement?
Let’s start with an activity as we dive deeper into this thought of what is the six Assets a business individual needs to list on their Financial Statement? And by the way when you finally have enough money and assets to fill out a Financial Statement that day when you see it take shape is liberating. Absolutely. If your just realizing one day that you Made a Million Dollars in one year? This video by Patrick Bet-David is for you. Watch It!
Ok let’s get back to Asset’s. What are the Six Assets types you should list on your Financial Statement?
Bank Accounts
Bank Accounts mean your Personal Bank Accounts, not your Company Bank Accounts. It should go without saying that Commingling Bank Accounts with your Company’s money and Personal Money should never happen. I hope I don’t have to explain. It’s just bad for business. Capeche? Great Moving on.
2. Stocks
Do you have Stocks in the S&P or an Account with Charles Schwab or Edward Jones? Or even Robinhood? Then you will want to individually list each in Subsections on your Financial Statement. I hope your learning this is the Big Leagues.
3. Receivables
If your a business owner or you have personally loaned money out to your Community your going to want to list Receivables. To take this definition a bit further and be more politically correct with the Accountants who will read this. I grabbed this definition from a reputable source online. Receivables is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers. Accounts receivables are listed on the balance sheet as a current asset. (R) is any amount of money owed by customers for purchases made on credit.
4. Real Estate
Ok this one could be tricky for most who are out there and do not have an Accounting Background. But when your listing your Real Estate assets on your Financial Statement you need to list them correctly. What do I mean by this? We want you to list your Real Estate Assets in a selected manor. Meaning take the Fair Market Value of your Real Estate Asset and write this number down. Now make sure you do not include the sum of the Mortgage you still owe on the Asset or Property. Make Sense? Ok Good! Speaking of Real Estate I want you to go check out this Madman named Ben Mallah.
Ben Mallah’s Youtube channel all about Real Estate is surely to entertain you with how crazy it is. LOL Here is a video from his Channel. Between you and me, I have told Ben several times how much I appreciate his crazy Youtube channel and him as a Investor. He is a solid Big Loveable Bear! LOL Ben taught me personally about 1031 Exchanges and Deferred taxes. These topics will be a post all on it’s own.
And for our last 2 Asset type’s you should list on your Financial Statement? Drum Roll……!
5. BOND’s
It should go without saying you should list your Bond assets on your Financial Statement. After all it is a legitimate Investment Asset. What is the proper definition of a Bond? I grabbed this online and this should help with describing this asset class. Bonds are units of corporate debt issued by companies and securitized as tradeable assets. A bond is referred to as a fixed-income instrument since bonds traditionally paid a fixed interest rate (coupon) to debt holders.
If you need to brush up on the How the Bond Market Moves and Operates? Please be sure to check out my former post on the subject. Here!
6. Business Value
When sharing this Asset type on your Financial Statement you should consider that you want to share the (NET) Value of your Business. What you listed on your Tax returns. NOT what you think it’s worth. To many business owners I meet have a value that is unrealistic. And fail to consider thier EBITDA and other costs. It becomes a big mess in the end and certainly lead you down to having unrealistic expectations. Be honest and be straight about your Busienss Value. That’s the smart play.
What is the definition of Business Value? It is the standard value measure used in business valuation. A Partner with PWC shared with me today, business value is the entire value of the business; the total sum of all tangible and intangible elements. Examples of tangible elements include monetary assets, stockholder equity, fixtures, and utility.
In conclusion you should have picked up some good information from today’s Article and Post. Generally speaking if you look at the Cash flow, and asset patterns on your Financial statement and the Assets you list on this Accounting form you can see where your lacking and where you should add a little value of shore up weaknesses. Thank you so much for reading and IF you have any questions or Requests? Please email me at JamesonDocSharp@Gmail.com and please tell me if I am missing the mark or really making a difference? I love helping others in Business. In fact with so many people who did not help me and blew me off? I feel it’s my duty to be open to helping others.
Thanks everyone Take Care – Please Comment, Like, and Share. And I will catch you on the next artcle.
If your not sitting down with your Business Partners to collaborate on direction, agreements, leadership and other terms once a year? Your likely setting your business partnership up for certain failure and possible major disagreements. If your willing to ask hard questions up front and use my suggestions in this post? You will walk away with a impressed Business Partner and a solid relationship foundation moving forward.
Accounting is Accountability
I am very aware most Entrepreneurs in small business more than likely are Financial illiterate. They have no way of knowing what they are doing right and what they are doing seriously wrong. The first step in building a Financial Foundation is to take a Accounting class online or at a local community college immediately. Having trouble absorbing the information? Take it two times if need be. Learning these lessons are the foundation for business literacy. Education will begin your financial knowledge foundation. This simple task is often over looked and sadly dismissed as unnecessary. Usually by ignorant and or over confident entrepreneurs doomed from the beginning.
Your Accounting course will begin shaping your thoughts and questions in finance and business. Meaning you will become curious and personally teachable like myself. Figuring out through extended time and gaining more experiences “How business really works.” You need to be aware of when you may be getting robbed in a Board room and a fancy pen with unforgiving businessmen who have blank unemotional faces. I know what your thinking? Harsh? Yep! But I have to prepare you for the reality. I know you probably think I am completely nuts! Because of me slipping that in there. But truth is I have to keep you on your toes.
Being able to take raw numbers and data organize them in excel spreadsheets. Is how you make sense of business numbers and Profit Loss P&L Statements and more projections. Most entrepreneurs fail to consider metrics and numbers. When you can evaluate and know the numbers. This undoubtedly makes you more valuable and attractive as a Business partner. Speaking of partners and investors in business? Your bound to have disagreements. But most times its easily negated by active listening and personal collaborating.
Are You Creating Your Own Business Disasters?
Maybe you have been building your business, maybe you have spent your life savings and built a nice little business with a income stream to match. But you have one problem. Your margins are not allowing your business growth. What do you do? You have a few options. Keep growing at a small rate over time. Risking possible bankruptcy. Or B. Recruiting a Business Partner who can invest Capital or other possibilities to help you grow it fast. Example: Let’s say hypothetically your sitting at a table across from your new capital partner and She or He offers you $150,000 dollars to begin scaling the business. Do you take the money? Or do you ask more questions and try to collaborate? It seems likely many Small Business owners have difficulty in situations like this. If you go look at Business Equipment Financing websites? It’s littered with confused entrepreneurs who have made poor capital decisions. They just did not ask enough questions and did not use metrics.
I would first ask A.”How can we grow this together as a qualifying collaborative question? And B. “What are you looking for in return for investing this money?” Asking these starter Questions are great because they take you deep into collaborating together. Building a solid partnership. But for now let’s hypothetically say you do not take my advice. And you end up….Smiling at your new partner, take the check shake hands. Leave the meeting. And get busy scaling your business to new heights.
But! There is a problem. YES!! YOU HAVE A HUGE PROBLEM!! You have have no mutual understanding. And you have “NO PARTNER or Terms AGREEMENT!”
Agreement’s Mean Collaborating.
Ok let’s say you left that meeting deposited the 150 thousand dollar check in to your business account and began scaling your business right away. A little time goes by and your small business is honestly becoming bigger than you ever thought. The stream of cash flow coming in to your business accounts receivable. It’s powerful. LOL It’s wonderful. Then you get a call out of the blue. It’s your Partner. He or she is confused and annoyed and down right borderline furious. Your partner wants to know “WHY THEY HAVE NOT GOTTEN ANY INTEREST’S PAYMENTS?”
You assume you have been a responsible business owner and think to yourself “No problem. I got you!” And ask your partner “How much do you need for interest payment?”. Your partner responds “I need 25.00% percent on the principal.” And just like that! Your life and future business starts to crumble and spiral out of control all from the fact you failed to negotiate terms on the money. And you failed to negotiate your Partnership Agreement. Whoops. Shaking my head. Now you begin seeing doing a little prep work goes along ways.
The Sit Down
There is a reason the Italian Mafia or Cosa Nostra was very effective in business. They were great because they had the sit down! They had behavior Guidelines. Michael Franzese has some genuinely great content. I would highly suggest reading his books.
In the video above your gonna learn some invaluable business advice. And I mean invaluable. So pay attention Capeche? Good! Im gonna stand on my soap box for a second here and share with you some invaluable advice and experience. So pay attention please. In the Military you learn real fast that you will be punished severely for not taking responsibility for anything and everything and everyone as a team. So I suggest you take responsibility for your partnership and team. Recruit a Business Attorney to help you negotiate and prepare your interests for success. Instead of ending with headaches and certain failure.
Did you miss my Post about Creating Trust in Business Negotiations? It is a must read for anyone in business.
Back to military service punishments for a second. This is funny in a dark way. Their is a underlying theme to being punished in the military. And this transfers to almost every other part of your life. You are responsible for your behavior and all your future outcomes. This means taking responsibility for anyone, everything, and everyone associated with a goal in mind as you move to that objective as a team. If something falls short. Your mission is disrupted by a mechanical failure. Something breaks? Doesn’t work correctly? Even if something isn’t your fault? Step right up! Spin the wheel of certain misfortune. Guess what? It’s your failure! No one else’s. lol It’s 100$ definitely a cruel way to learn. But it does work.
The Knapkin Contract In Business
If you don’t have a contract or a Agreement written down? Tough Luck! Your Busted Out! Don’t be the victim.
Back when you first sat down and your Partner offered to give you $150,000 dollars to invest in your business. You should have taken the initiative to draw up a knapkin agreement. Negotiate favorable and collaborative investments terms while writing these terms out on a piece of paper at the table with the person offering you the money. You can do this in a Restaurant or anywhere a knapkin is available. At the end of your desired agreement you both sign this binding ad hoc legal document. Then take this document and have your Business Attorney finalize it as a formalized, and signed. This is how you should have done it in the first place.
Capitalize on this opportunity. Don’t ever feel the need rush things and always make counter offers. And do your best to prepare questions and what if’s to protect yourself and your new partnership moving forward. I hope you did gain something or some foresight with this post tonight. Thank you for reading everyone. Please do suggest a topic you would like for me to cover. I would be happy to do so. Email me at JamesonDocSharp@gmail.com
