Discover Your Finance Engine: Leveraging Cash Profits and Wealth to Secure Sustainable Financial Freedom

A thorough and intuitive guide to understanding how money flows in and out of your business. An indispensable must for the start-up or seasonal entrepreneur who wants to grow their business.

—Gino Wickman, Author of Traction and Entrepreneurial Leap

Discover Your Finance Engine

Leveraging Cash, Profits and Wealth

to Secure Sustainable Financial Freedom

Debra Cooper

The Finance Engine Series

Discover Your Finance Engine © 2020 by Debra Cooper.

All rights reserved.

Published by Author Academy Elite

PO Box 43, Powell, OH 43065

www.AuthorAcademyElite.com

All rights reserved. This book contains material protected under International and Federal Copyright Laws and Treaties. Any unauthorized reprint or use of this material is prohibited. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without express written permission from the author.

Identifiers:

Library of Congress Control Number: 2020918951

ISBN: 978-1-64746-536-0 (paperback)

ISBN: 978-1-64746-537-7 (hardback)

ISBN: 978-1-64746-538-4 (ebook)

Available in paperback, hardback, e-book, and audiobook

Any Internet addresses (websites, blogs, etc.) and telephone numbers printed in this book are offered as a resource. They are not intended in any way to be or imply an endorsement by Author Academy Elite, nor does Author Academy Elite vouch for the content of these sites and numbers for the life of this book.

Although the author and publisher have made every effort to ensure that the information in this book was correct at the time of publishing, the author and publisher do not assume and hereby disclaim any liability or any party for loss, damage, or disruption caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

The financial information provided is for general informational and educational purposes only and is not a substitute for professional advice. Before taking any actions based upon such information, we encourage you to consult with the appropriate professionals.

The use or reliance of any information in this book is solely at your own risk.

This book is dedicated to all the courageous souls who have embarked on the small business journey with the desire and passion to make the world a better place.

Table of Contents

Note to Reader

Introduction

Case Study: Sam’s Dilemma

Part 1: The Heart of Your SME

Elusive Road to Success

The Embodiment: The What

The Controller: The Who

Pulling Back the Skin: The Why

Building Your Empire: The How

No Time like the Present: The When

Part 2: The Three Platforms to Financial Freedom

Chapter 1: Without Profits, What’s the Point: The Measure of Your Business

Chapter 2: The Ingredients of Profitability: Elements of the P&L

Chapter 3: The Blood of Your Entity: Let’s Keep the Blood of Your Business Pumping!

Chapter 4: Without Stability, What’s the Point: When Revenue Streams Fail, Where Are You?

Chapter 5: The Recipe of Stability: Elements of the Balance Sheet

Chapter 6: The Backbone of Your Entity: No Backbone, No Survival

Chapter 7: Without Oxygen, What’s the Point: Cash Makes Your Enterprise Breathe

Chapter 8: The Ingredients of Oxygen: Elements of the Cash Flow Statement

Chapter 9: The Lifeline of your Entity: Without Cash Reserves, You Die!

Part 3: Fine Tuning Your Finance Engine

Case Study: Sam’s Dilemma Solved

Change Your Financial Destiny

Bibliography

Acknowledgements

About the Author

About Zephyr Management Solutions

About bizzness breeze essentials

Next Steps in Discovering Your SME’s Finance Engine

Happiness is not in the mere possession of money;

it lies in the joy of achievement, in the thrill of creative effort.

—Franklin D. Roosevelt

SME is a universal abbreviation used worldwide to describe the smaller and medium business entities.

Note to Reader

The entrepreneurial journey is not an easy one. It encompasses many learning curves and hills.

From fine turning the unique solution you have created, understanding and implementing marketing strategies and tools, managing the convoluted issues surrounding staff, handling the production process, and designing efficient logistic and distribution strategies to understanding and managing your finances, it is easy to become overwhelmed and disheartened by the challenge.

However, of all the obstacles you face as an entrepreneur, the challenge crucial to your SME’s success is financial management.

The aim of Discover Your Finance Engine is to provide a quick and easy guide for exploring the financial statements your SME’s Finance Engine can produce and how they can add value to the management of your enterprise. Taking into account the characteristics and challenges that the smaller entity faces, I used concepts adopted by big business and modified them into a process the small business entrepreneur can utilize. My ultimate endeavour is to clarify the financial jargon thrown about when discussing finances with professionals and cut to the chase regarding how these financial statements fit within the scope of small business management.

Whether you are new to the entrepreneurial journey or have been managing an SME for some time, you are a traditional bricks and mortar entity or a new age online enterprise, it is always a good time to strengthen your grasp on your SME’s Finance Engine. The first step in gaining financial control of your SME is understanding the financial statements your Finance Engine produces.

While all concepts and definitions are consistent with the accounting standards produced by relevant associations in your region and throughout the world, they have not been applied rigidly. Accounting standards ensure uniformity for investors and associations external to your SME. The objective of this book is to provide the SME owner, no matter which region they operate within, an understanding of their own financial statements so they can format them to support their internal decision making.

This self-help guide assumes the reader has limited to no knowledge of business finances. This has allowed me to start at the roots of business terms and concepts, so I can take you on the journey to Discover Your Finance Engine. Though anyone can benefit, this guide is for the beginner in SME financial management who wishes to better understand how money flows in and out of their SME, and to improve the management of their Finance Engine and capitalisation of the information it provides.

Be warned! You will not become a financial expert on your SME’s financial statements by a simple skimming of this guide. You may need to read through it several times and occasionally refer back to previous sections as you review your own SME’s financial statements from one month to the next.

The objective is to help you understand how these statements should look and highlight any shortcomings. Over time, as each reporting period passes, you will be better able to absorb and implement changes to the statements to improve the management of your finances and your small business.

Thank you for investing in Discover Your Finance Engine–Leveraging Cash, Profits and Wealth to Secure Sustainable Financial Freedom. I hope you find value in the coming pages. If, by the final page, I have improved your mindset regarding the value of your entity’s Finance Engine, then I have achieved my objective.

Wishing you prosperity in all your small business endeavours with kind regards,

Debra Cooper

Introduction

So, you are an entrepreneur. Great! And you want to grow your business activity and create a sustainable business around your entrepreneurial concept? Terrific! So, what’s your current financial position?

I have no idea, not until I send my books to my tax accountant,

Or,

I’m behind with my bookkeeping, several months in fact. However, last time I checked everything was fine.

Every time I hear a comment like these, I hear warning bells.

To build a successful, sustainable and profitable business,

an entrepreneur must

UNDERSTAND, MANAGE and OWN the Finance Engine of their SME.

If they do not, it is entrepreneurial SUICIDE.

I frequently hear SME business owners complain about the burden of keeping their bookkeeping current. They do not view this function as a revenue producing activity, so give it low priority, and push it aside until the eve of financial or taxation deadlines when they demand attention. This behaviour is to the detriment of the entrepreneur and their business.

The SME’s Finance Engine should be seen as a cash-producing asset, similar to an employee would be to a service-based business or a manufacturing machine that produces the products you sell. When the Finance Engine’s mechanics are understood, managed and owned by the entrepreneur, this function becomes a reliable and intuitive asset the SME cannot survive without. Not only are you in a position to minimise your business costs and leverage off the small wins in revenue earnings generated from your marketing engine, you can manage your business to maximise profit levels, entrench your financial stability and accumulate cash reserves to survive that eventual rainy day.

This is a crucial step if you are serious about growing your business into an entity that is sustainable in the long term and will provide you with financial freedom. Taking these steps will not only add value to you and your staff, but to your customers, suppliers and business partners. You must take ownership of your SME’s Finance Engine.

One way you can take control of your finances is by driving the process of completing and updating your accounting records, instead of waiting for external parties to push you into the task. When you manage your finances to self-imposed and concise deadlines, you keep your pulse on the results of your business activity. You will extract gems of information hidden in your Finance Engine that will improve your SME management and shore up the chances of success.

Sound promising?

If you are ready to convert your mindset about financial management from a weighted burden into an invaluable and informative asset, you have made a great start by investing in Discover Your Finance Engine. This is the first self-help guidebook in the ‘Finance Engine’ series that aims to clarify the three core financial statements, their purpose and what they say about your business.

We will outline a case study for Sam’s Landscaping & Design. The case study is used throughout the guide to provide examples of common situations that the SME faces and to clarify concepts and elements that relate to the three core financial statements. When reviewing the case study examples, look at your own respective financial statements. As these statements encompass your entity’s business activity, our discussion will further clarify the concepts and elements and how they apply directly to you.

In part one we look at the what, who, why, how and when of the three core financial statements and how they relate to your SME’s Finance Engine. We will outline your role as the entrepreneur / business owner and what level of reporting your SME should prepare at a minimum.

In part two, we discuss each of the three core financial statements. We will outline the purpose and importance of each statement, the elements they report upon, and each element’s relationship with others reported on the statement. This section will also cover the relationship of each statement with the other two core statements and how you can preserve their health and, subsequently, the health of your SME.

In part three, we outline the next steps in taking ownership of your SME’s Finance Engine, and shoring up your business’ chances of sustainability and longevity to achieve financial freedom.

By the end of this self-help guide you should be able to:

Identify the three core financial statements;

Identify, understand and interpret the elements reported on each financial statement;

Understand and interpret the relationship of each element with others on the financial statement;

Understand the relationship between the three core financial statements;

Be able to identify discrepancies, losses and wins in the elements reported;

Be in an informed and empowered position to manage your SME’s Finance Engine.

I aim to provide a self-help guide for the busy entrepreneur that is concise, factual and easy to read at the end of a long day, while inspiring you to take ownership of your SME’s Finance Engine and your financial freedom.

Case Study:

Sam’s Dilemma

The case study scenario is based on a fictional company and depicts a turning point for Sam’s Landscaping & Design. The business owner is forced to face the truth about how he is managing his SME’s Finance Engine and the impact this has on his business. The dilemma and repercussions Sam faces represent my experience working with small business and will provide realistic examples to clarify the elements and concepts discussed.

*Please note, Sam’s Landscaping & Design is an entirely fictional business used for demonstrative purposes only. Any reference or resemblance to an existing business or businesses is purely accidental.

The case study begins when the business owner, Sam Buchan, receives news that has a detrimental financial impact on his business.

Sam Buchan hurled his phone into the corner. It slammed into the filing cabinet with a deafening thud; the vibrations echoed throughout the room and into his heart.

Sam’s breath caught in his throat, and pain ripped through his chest. He pressed his hand to his stomach as it cartwheeled, threatening to return his last meal. After a thirty second phone call, everything he had worked for during the past five years crumbled around him. He desperately tried sorting through the implications, but it was too much to absorb all at once. Jake’s news kept replaying in his mind.

His wife, Beth, appeared just inside the doorway. She had been out to lunch with her girlfriends yet again, her cheeks still pink from the wine and ambient exuberance of the gathering. The couple had their weekly argument that morning as they tried to work out how they would finance the payroll. She initially glided into the office on a wave of euphoria, but the greyness of concern now shadowed her blue eyes. How was he going to tell her what Jake’s news meant for them, for their business…for their way of life?

What on Earth was that? You look like you’re going to be sick, she said. She eyed the abandoned phone laying lifeless on the floor, separated from its case during the collision.

Our business, Sam mumbled, unable to continue.

Beth sat down opposite him and ran her fingers through her long blonde hair, toying with the curls like she always did when she was worried or uneasy. What do you mean, our business?

Jake. Sam croaked, his voice failing him. He needed to show confidence that everything would be ok. Jake, he said again, his voice stronger. He called in the loan.

Beth’s gaze hardened. The loan that we never ever had to pay back.

He has to declare it. He’ll need the money to settle the divorce.

You mean, Suzie’s making him cash it in. There was no love lost between her and her sister. She never agreed with it. Beth picked up his mobile and the discarded case, placing them on his desk. She rested her hands on her hips, preparing to fight. Well, we simply can’t pay it. I’ve just had to beg Sally at Benefit Homes to pay some of their invoices early. $200,000 is going to be a little harder to find.

We have no choice. Suzie is hitting Jake up for seventy percent and his solicitor says that while they’ll fight it, she’s likely to win. Jake doesn’t have the cash to cover it himself, and that money is legally his.

"So, we have to suffer