Business Profit Maximizer #2 – How To Read Financial Statements

Business Profit Maximizer #2 – How To Read Financial Statements

so let me ask you a question if you can treat the score how do you know how can you tell from the winners from the losers we know from that let me ask you what kind of way to see this school boy what kind of game is this what is that football football okay now how many of you don't understand football okay cuz I don't as fan football you look at this home visitor down fall on to go what the does that mean you like to who's winning here what's going on case we don't understand the language of the game yes okay let's show me another one what kind of game is this basketball yes okay how many of you don't understand basketball okay you look at well kids Vikings Wildcats shock clock period player fouls what the is tol like what what is what is going on here same thing if you don't understand the rules you can treat this school board how could you tell how could you tell and that's the thing we'll never been taught how to read the numbers how to read the numbers so accounting is not the school board accounting is the report card accounting is what the report card when you go to your banker your banker and it's from which they're poor that it's not gonna ask you about well you know what kind of great did you get in school you know what's you what's the score did you did you get all A's in business so I can make you this loan what are they asking for what is it yeah your financial statements they look for your financial statements your financial statements an indicator how well you actually understand money how well you manage money and how well you would more likely to pay back the loan is gonna give you you could be over but I'm a very nice guy don't sue me your financial statements I don't care how nice you are you ain't getting a loan sir right you could be not so nice but looking a financial statement I'll give you a loan thanks is how they work they loan you money when you don't need it they loan you money when you don't need it it's funny you guys when I have no money I try to get a line of credit and they just would not give it to me Lee bit line of credit they will not give it to me now they call and you know Dan you need some money I said I don't need the money no you need some money line of credit credit card what do you want it you need mortgage tell me please how long you saw I don't need the money I'll call you back next week maybe you need some money there what about your partner's know anyone that needs money because how does how do banks make money yeah they make monies my lonely money out so they have a quota that they need me they need to get the money out and most likely if you understand how banking works they prefer to loan a whole bunch of money to one person believe it or not if you understand financial and you actually accumulation amount of wealth it's actually easier to follow a whole big chunk of money then they're like little bit of money yeah they they would yes right there Minos they don't they don't want to loan I'll it's only ten grand come on like yeah they want a million bucks let's talk guys think 10 grand a pop it means how many applications they have to process to get to a million 1 million good track record we've got assets nose financials great Oh million bucks here you go awesome right let me go play golf that's how bankers think that's how bankers think so there are so we talked about the cockpit as a pilot your business we need to read learn and read the dials yes there are three how many three dials that you have to understand you have to understand so the first one is what I call a balance sheet what does it call a balance sheet now with a balance sheet which you have a balance not bs balance sheet okay so NIC is very simple on balance sheet you have now forget I don't want to get so complex with these accounting terms okay so I'm gonna use my damn log terms here okay let's on the balance you get what I call things and stuff okay how many can understand things and stuff okay things and stuff things and stuff now give me an example what is something the in accounting term is called assets but what are some of the things and stuff do you have in your business hmm car okay so vehicle yes a technology good office yes its cash part of it yes cash okay property yes if you you have a property that you occupy your retail location property yes we see also question is its goodwill some of the things and stuff yes your brain right good we own yes okay so yes some things and stuff here and then you also have so in terms of things and stuff you either own your things and stuff or you all things and stuff okay so we feel after me either all the things and stuff or you all the things and stuff now when you all things and stuff we caught that equity right equity when you all things and stuff we call that liability okay so only and owing things itself how many you follow what I'm saying so far so good yeah so what's so good yes things are stuff now she's now the balance sheet is nothing more than a snapshot heywhat snapshot so everybody does this with just engage it do that just take it yeah a snapshot so it always has a specific date it's a snapshot of snapshot of what happens in any given time so it has all in time it always has a single specific date always a single specific date our balance sheet shows what a company owns and what it owes very simple things itself right things itself and how much money is tied up in terms of cash or receivable inventory or equipment balance sheet now first question for you is this how many of you get a balance sheet once a year okay once a year how many get it once every six months okay how many get every quarter okay every month okay balance sheet a snapshot what is happening then you have what I call an income statement a what income statement so with income statement now think in terms an income statement with an income statement an income statement is a theory you say what they say theory now for those who understand accounting bear with me you're like no what do you mean yeah no that's our theory an income statement it's income statement it's a theory and I'll explain why in a minute now they are different in income statement you have of course sales right revenue it's ourselves now if you're selling a product when you have cells you also have what they call costs of goods sold right what does that mean how much it cost to make those things right how much it costs to make those things so when you sell you cells – cause of good it's what becomes your it's called your gross profit okay it's call you what gross profit okay your gross profit and then now when you're making sales do you also have some expenses yes – no some expenses what are some the expenses your the answer yes yeah advertising yes rent good commissions pay oh yeah you see there some other there right hmm you teary yes securely keep the lights on right it could mean your experience your office equipment yes if you lease any equipment yeah taxes now so look at okay so what happens is most business owners they get the income statement what's the first what's the number they look at how many look at that number immediately right what is mine an income in this case it's a is $18,000 and you look at the net income if the net income is higher than last year you go have a drink right if the net income is lower than last year you will have two drinks right few drinks now you wonder why a lot of entrepreneurs are alcoholic two drinks so you look at the numbers you look at okay that's what's going on but here's the problem with that it is a theory it is a theory it's not actually how much money you're making because you can't go to the bank and deposit profit you don't go to the bank and deposit profit when you go to the bank earnings pass of what cash cash so that number could be very misleading income statements can be very helpful but it can also be very dangerous it can be what dangerous the number at the bottom of an income statement is not cash and cannot be spent cannot be spent so don't think in terms of oh yeah okay that looks okay then I'm okay no no no the number the bottom an income statement it's not cash and cannot be spent very key just for now remember that got it okay stay with me your wig okay stay with me here now let me ask you a question is it possible for business to have fifty thousand dollars in profit have no cash yes or no why give me an example they got they got okay so it shows a profit but maybe they have not collected the money yet okay it's possible what else what our scenario is it how is it possible fifty thousand in profit and no cash yeah we spend money maybe they buy a new vehicle so it's the show as a profit they they spend the cash yes that's awesome inventory yes so it could be that yes we have 50 assets in profit but then we invest a lot of their cash buying the next quarter inventory yes I counsel some of that so arrows cases going Accounts Payable right I can't spend all this kind of receivable so or let me ask a question could you have fifty thousand dollars of losses and have a hundred thousand dollars in cash how is it possible though hmm okay so so yeah you know you have 50 thousands in losses you have some accounts payable you get all some people some money you haven't paid that yet so you still have that cash right okay how many have done that before so bad okay but what are the scenarios how could you have yes it's not actual cash very good very good right yes yeah you could also be you have fifty thousand dollars in losses but may be that you're running out some money that you borrow from from from a friend 100 200 grand hundred grand cash and put in the business so it looks like you have losses but you actually have some cash in the bank account does that make sense so can you see how if you just look at an income statement it could be little bit dangerous if you try to make your business decision based on okay I think that's what's going on but it may not be actually what's going on okay it's like you go to your doctor and you see how many of you regularly like your body checkup and stuff like that you should do that once a year are you going look at you go see your doctor and you and doctor looks at these numbers mm-hmm cholesterol your this and then you go through all that yeah I've no idea what these numbers mean but I think you're pretty you're pretty healthy right and then you look at the numbers like I don't know don't I don't well this is me doctor I don't know I don't know so as an entrepreneur we need to be able to interpret it was it work what these numbers mean we need a turn to convert those numbers into the story what are the numbers telling us what is the story behind the numbers you know I'm not trying to turn you into a bookkeeper or an accountant no no I'm trying to get you to understand some of the fundamentals so then when you look at some of the numbers oh yeah this is what I need to work on that's what my business needs and that's a lever I need to pull in within my business versus I have no idea what this means but let's just go out there and grow and generate more revenue does that make sense cool so running a business out of a checkbook or tax returns or looking only a net profit are very poor way to run a business or determine the financial health of the business it's very very misleading you look at a net income so all I think I'm doing well I think that's going up every year it's very very misleading a lot of entrepreneurs especially solo entrepreneurs they look at the text returns imagine you get your tax return is how much back taxes you owe how much you pay what does that tell you about your business nothing it just tells you how much tax has got to pay does that mean like my cop my margin is going down is it going up it might bring in more clients how am i spending too much money servicing those clients do I need to hire more people am I paying too much for my employees what the it's low but you look at a text return I guess I'm making more money I'm making lesson I don't know but that's how most entrepreneurs operate do you see how dangerous that is yeah it's very very dangerous very dangerous so and then we have the third dial which is the most important one is what I call the cash flow statement what I mean cash flow statement now a cash flow statement is not a fact you know it's not a theory it is a fact it's not theory it's a fact it is a fact from the cash flow statement cash flow statement and you notice actually most entrepreneurs when they found a tax return they get the balance sheet they the income statement there often they don't have the cash flow statement they just look at those two then this it's actually a fact this is actually how much money you have okay you look at that now but here's the thing cash so let me ask you a question so it's for cash flow what are we measuring here no for cash flow what are we measuring cash right cash flow so cash is the real money and it's money that hits your bank account cash it's what you used to pay your bills and employees in rent it's actually listen to this cash is what you'd use to pay your bills and employees in rent characters what use do we pay lenders and provide shareholders you with returns you go to the bank and you deposit the cash cash in fact say with me give me some cash yeah give me some cash everybody give me some cash give me some cash yes give me some cash and not all cash is created equal not cash although all cash is created they're actually different types of cash what do you mean they're they're actually different types of cash the three types of cash how many three types of cash you have first what I call operating cash or operating cash flow it's called always C F it's called what always C F right it's down this is cash generated or used by the operations of the business generate it or care or use by the operations of the business operating cash operating cash and then you have what I call investing cash or investing cash flow right it's where this down I see what I call i CF investing cash flow this is cash generated or used in buying or selling fixed assets now what are fixed assets we're talking property plant and equipment or PPE a lot of you like to refer to property plans or equipments I you have a piece of property of retail location you use so that piece of property is sold that piece of land is sold that factor and you got money that would be investing cash does that make sense okay fixed assets investing cash flow and then you have what I call financing cash flow this is cash generator used from lenders or investors let's say you put in some money or your family putting some money into the business putting some cash in the business that's financing cash okay financing cash or you borrow money from the bank that's a financing cash financing cash flow F C what's it called F CF so funny seen cash flow F CF so we've talked about three dollars right what's the first one what's the first one balance what's the second one what's the third one how many types of capture there and there was the first one what's the second one what's the third one okay take two minutes how long discuss among the table what you've learned so far okay two minutes go ten times your finances ten times your business ten times your marketing ten times your life hit the subscribe button now

23 thoughts on “Business Profit Maximizer #2 – How To Read Financial Statements

  1. I had to stop watching a minute and a half in. I don't need the profanity, the camera wouldn't even show what he was pointing at, and the whole intro seemed like a display of ego. Good on him for being wealthy, but this was a bad video.

  2. Учу бесплатно, каким образом можно делать пару раз в сутки до 65 дол. на свою банковскую карту. Изучите вuдео у меня канале

  3. I feel like these are the fundamentals of how warren buffet made his money, learning how to interpret the financial lingo allows you to understand the true wealth of the company

  4. I like this video because is breaks down a lot of complex "basic" financial stuff in terms I can understand! Please do more videos like this. 🙂

  5. Defenitely would like to hear more interpreting of those figures especially in planning future development of particular business.

  6. Thank you, Sifu Dan, for teaching me about cash and profit in order to assure my business is running healthy.

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