Bonus Video - Financial Statement Tutorial


The Personal MBA: The Foundation of Effective Business


Lesson Info

Bonus Video - Financial Statement Tutorial

Hi this is josh kaufman and I'd like to take a minute to show you the financial statement that I used to run all of my businesses now in general I'm a fan of the symbols things that can possibly work so this financial statement is a very simplified version of both a business income statement and a balance sheet and as as you'll know from the personal mba creative life class those are two of the three major financial statements the income statement the balance sheet and the third is the cash flow statement now a lot of folks are really intimidated about finance and accounting because it's very easy to make these the's subjects very complex now if you're running a business by yourself if you're running that business on a cash basis you don't have a lot of employees you don't have a lot of inventory your accounting and finding it seems are are very, very simplified so if your business is it complicated there's no reason your finance and accounting need to be complicated as well so I have ...

a lot of people ask me about software packages like quickbooks all sorts of different ways to to account and analyze and sped out a lot of fancy reports if your business isn't complicated you don't need to make your financial tracking and report reporting complicated either so this is what I use the wonderful thing about running a small business if you're running it as a cash business so you don't have any sort of inventory that you need to match then logging into your bank account online is your cash flow statement as long as you only have ah few accounts you can log in and see how much cash you have what's going in what's going out and the banks ledger that it keeps for you is pretty much the only cash flow statement that you need now what your cash flow statement doesn't tell you is profitability so the first thing that we're going to look at is the income state mint for a business and the income statement if your business is simple it's really, really straightforward to set up in and I'll show you how I do it. So the first thing that I do is create a spreadsheet in either microsoft, excel or apple numbers. You can use whatever spreadsheet program that you want and, uh at the top. So the columns you just have the months, january through december, pretty straightforward on the rose, you have income at the top and you just list your sources of income whatever they are and you provide a total right here and below that you have your expenses, so what are all of your expenses? I usually include a bucket for operating expenses? I put most of my operating expenses on a single credit card that bucket goes here, then, if I want to break anything out later, I do that below so it's, really straightforward for every single month you list your sources of income and how much that you brought in from each of those sources of income at the bottom, you total that ups, you know exactly how much income you brought in in january, and then over on the right, you can total that up by the year, which is is just a a sum of all twelve months of income from that source. Now the nice thing that I usually do aside from these two basic totals, a monthly total and a yearly total is I do a percentage calculation, and I figure out what percent of my income each of those sources was for the entire year. So what you'll just do is is divide the sum by the amount that you brought in total and convert that to a percentage, and that will give you the percentage each of your income sources ah was for for that given year. It's really, really useful toe look, particularly if you're doing this, tracking over a number of years to look at your sources of income and how they've changed, and to see what's working really well, what you should do more of and to see what's not working so well and what you should probably not spend so much time on so that's how you handle income you do the same thing for expenses. So what are your major sources of expenses could be things like paying your rent or insurance or salaries or contractor fees whatever that is include that as a source and track it by month and then you do the same total calculations so the total expenses of that source for a month and the total expenses of that source for a year and the same percentage calculations so you can see how much what percentage of your total expenses your rent payments or contractor payments took up for that particular year really, really useful for financial analysis now what you don't include in the in this expenses column is taxes so it's it's usually when when you look at the accounting books or resources that are out there you track your business expenses first, eh? So you can track your what's called earnings before tax so earnings before taxes just total income minus total expenses then you account for your taxes below that and then you can calculate your profit and loss. So what your earnings before tax minus your total taxes is your profit or loss for that month and for the year so what you can see is this part of the spreadsheet is just a lot of inputting the data on a monthly basis by source summing it up, making percentage et presented just out of it so you can you can do some financial analysis, um, and then below here, just tracking your texas it's all that all that we're doing here addition subtraction, multiplication division converting a decimal into a percent that's it very basic arithmetic. Now what this gives you, particularly when you have a whole year's worth of data, is a very straightforward way to understand where your money's coming in, how your money is going out, how to compare the different sources of income and expense that you have so you can make better financial decisions and do some basic cost benefit analysis that it allows you to to make it much easier to do your taxes. So at the end of every year, I hand in this completed spreadsheet to my accountant and my accountant files my taxes, you should never well, I won't say that you shouldn't really, if you're running a business, file your taxes yourself because accountants can give you very good advice that could save you thousands and thousands of dollars in terms of what you can deduct and how you should structure the business to make sure your tax efficient, so at the end of every year, I just give this completed income statement to my accountant in my accountant runs the numbers and helps me calculate the tax and then when I track the tax down in here in terms of what I'm paying and when that allows me to calculate my true profit and loss for the year and that's pretty much what this is all you need if you are running a very small business out of a cash account and you're not carrying inventory or doing anything crazy complicated so for all of my businesses this is the only thing I used because it's the only thing I need now if you're if you carry inventory if you have a complicated business if if you have lots of employees or lots of things going on you'll probably want t to talk to an accountant or bookkeeper to to see exactly how you should be tracking but if the business is simple this is pretty much all you need now just below that is a very basic balance sheep and the goal of the balance sheet remember is to give you an idea a snapshot in time of the assets and the liabilities of the company so what you want to do here is at the top of the balance sheet you uh sum up all of the cash that the business has at a point in time so a certain date at a certain time how much cash you have what's the value of your property and equipment so what assets do you have that you could feasibly cell to get more money that's, an asset and you just some those up those your current total assets and you can add columns if if you have other assets that you need to account for like investments etcetera below that you track your current liabilities and the two liabilities that most businesses have our accrued operating expenses? So how much do you have yet to pay for operating that you haven't really paid yet? This is really valuable if if you have any credit you have a credit card you have trade terms with with some but another business something like that that goes into crude operating expenses and then income tax payable is how much tax do you owe that you haven't paid yet? Whether that's tio to the state or to your federal government, whatever whatever that looks like so that's your total current liabilities and you're retained earnings are just current assets total current assets minus total current liabilities is retained earnings and that's how much you are business uh is worse or or how much you have left over after you repay all of the current liabilities that's positive congratulations your businesses or something uh so that's pretty much it it's it's a really basic format that allows you to fit a simple income statement and a simple balance sheet on one sheet of paper or in one file that you can continually update throughout the year now the other two things that they usually track on this this statement just for simplicity is if there are assets that I have that I that I expect to produce income long term I'll just account for them here. So I esso aiken at a glance know everything that I have that I expect to produce income in the future it's just a notes type of field and then if there's any expected income that you know is coming in in the future in other non cash accounting methods like the accrual method, if you expect to have income or if you've pre sold something, you count that right away with cash accounting income is an income until it actually hits your bank account and so to to account for the fact that for example, when I write a book when I'm finished with the book, I am expecting to be paid in the future because the publisher has agreed to it but that payment maybe coming a year from now so it doesn't show up on the income statement anywhere but I know that income is coming, so I just keep track of it in the long term assets expected income feel just as a note to myself the other thing that I like to do on the statement is have a field for operational notes so anything notes about how the business is structured, how it's run decisions that I make. So for example, I make a note from my accountant every single year I contribute the maximum amount that's possible to contribute to a individual retirement account, adding that as an operational note helps my accountant know that that payment was made into two account for that in doing the taxes for the year. So again, it doesn't show up on the income statement doesn't show up on the balance sheet, but adding it as an operational note makes it easier for me to remember whether I've done that or not, and for my accountant to to make the proper preparations when when putting together taxes so that's it it's a single page income statement balance sheet notes on on long term assets and expected income and any operational notes, and for a small business that you're running on your own, this is really all you need. You don't need a fancy software package all you need is a basic spreadsheet, and it allows you to keep very close tabs on your finances and know how much money's coming in, how much money's going out, how much you have left over and help you make sure that it is worth it for you to keep going and if it's not to make any necessary changes. Which is the whole purpose of finance. So I hope you found this useful. I'm including this video, along with the actual spreadsheets that I use. So you will be able. Tio, start using this in your business right away. I'll be enjoyed it.

Class Description

Part of The Personal MBA Bundle.

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Before you can expect more from your business you need to understand the fundamental elements that make every successful business function. Master those fundamentals, hone your business instincts, and save a fortune in tuition! MBA programs don't have a monopoly on business knowledge.

The Personal MBA will provide the foundation of knowledge that everyone needs to succeed in business. Internationally best-selling author Josh Kaufman will guide you through the tenets and teachings found in every MBA program in the country. Josh’s unique, multidisciplinary approach to business mastery has helped millions of people around the world learn essential business concepts on their own time. By understanding creation, marketing, sales, value delivery, and finance you will have the foundation to make your own business thrive.

Whether you’re thinking of starting a new business or looking for better results from your existing one, this class will help you master the necessary fundamentals to lead you to success.