An analogy of Financial Reports | KN95 Masks on Sale | COVID-19 News Updates
Happy Wednesday! (Huuuuu……. Huuuuuuuuuuummm…)
During our weekly leadership meeting, Gary (our Chief Administrative Steward) was giving the leadership team a refresher / class on financial statements (P&L, Balance Sheet, Cash Flow Statement). In an effort to help with some understanding I jumped in with an analogy that I personally really liked (it came to me in the moment), and I thought I would share it with you.
First, the overview of the financial statements.
In a business there are three primary financial statements used to monitor financial health and to inform decisions – the P&L, Balance Sheet, and Cash Flow Statement. You may or may not be familiar with these statements so I will, in my own words, explain what they tell you.
The P&L (profit and loss) statement, or Income Statement, shows your income, cost of the goods or services you are selling (COGS), expenses, and profit (or loss). Income minus cost of goods equals your gross profit. It is from this gross profit that you can pay your expenses, and what’s left over is your net income. Taxes are a factor but they only show up on the P&L if you are a C corp. Otherwise, if you are an S Corp or LLC the taxes are the responsibility of the shareholders each year and therefore do not show up as an expense in the business.
The Balance sheet shows the cash and assets of the business, as well as any liabilities – usually loans, but also the money you have booked as an expense but have not yet PAID. For instance, if you booked an expense for a vendor onto the P&L but have not yet sent the check, it shows up as a liability on the balance sheet in the “Accounts Payable” account. Glancing through the balance sheet you can see what cash you have in the bank, what people owe you (Accounts Receivable), what you owe as balances of loans and accounts payable, and also any “balance of value” of any fixed assets you purchased. For instance, if you bought a big ‘ol underwater basket weaving machine for $250,000 it is not (typically) able to be “expensed” on the P&L, and therefore shows up as an asset on the balance sheet. The IRS allows you to “depreciate” (write off) assets over a set amount of time, depending on the asset type, and to do that you transfer a piece of the value of that asset away from the balance sheet and onto the P&L. You are basically reducing the value of the asset and taking that reduction in value as an expense a little at a time. That one is maybe a little hard to wrap your head around without looking at it on paper.
If you think that one is hard to wrap your head around, try pondering the depths of the Cash Flow Statement. Once you do understand it, it’s pretty cool, but it feels a lot like a shell game when you first look at it. To put it simply, it shows WHY assets or liabilities increased or decreased on the balance sheet and WHAT that did to your cash position. Let’s say that you had $100,000 in the bank (which would show in an asset bank account on the balance sheet), and you owed $20,000 to vendors (which would show on the balance sheet as a liability in an accounts payable liability account). If you paid all $20,000 from the cash you would see your bank balance on the balance sheet decrease by $20,000, and your accounts payable (liability) account decrease by $20,000. If you just looked at one balance sheet (before) vs the other (after) you would have to dig and compare line by line to see what changed. The Cash Flow Statement will show you WHAT changed and by HOW MUCH in a period of time.
So, if you pulled the Cash Flow Statement for the month where you paid down your Accounts Payable, you would see the amount those accounts changed by (not their balances, just the change), and at the bottom of the Cash Flow Statement you would see a DECREASE in cash for the period of $20,000.
That is the simple scenario. A more complex scenario (which can be a mind bender), is when you booked depreciation from an asset on the Balance Sheet to the P&L which DECREASED profit, but didn’t actually decrease cash (because none left the business). In that case, you would see the effects of that transaction on the Cash Flow Statement – ADDING to cash. It is adding to cash because by putting it on the P&L it is decreasing an asset on the balance sheet (the net income from the P&L is the first thing listed on the balance sheet) so you have to “put it back”. Like I said, mind bender.
I am no accountant or CPA – so don’t expect perfection here. You get the idea.
So, here is the analogy I used today for a P&L. Before I say it, I will admit that it is NOT “accurate” to align with the three reports above. That would be too complicated and the analogy would thereby lose its simplicity. Don’t you email me telling me how wrong I am! Haha.
The Analogy from the perspective of a P&L:
Your Salary would be the “Income”
Your big expenses (house, cars, and other things that are big and somewhat fixed) would be the COGS (cost of goods sold).
The amount remaining would be the “Gross Margin” which is what you have remaining to spend on any expenses that you have some level of control over.
The amount you are left with after any spending on “expenses” would be like NET margin, which would remain in your checking account, or be moved to savings.
In your personal life, just like in business, each of these “levers” require a different level of thinking and effort to pull. You typically are not able to “simply” increase income. That requires some thinking, planning, time, and effort. You CAN control your “COGS” (house, car, and other big expenses) but it requires hard work, time, and special considerations. Your decisions (whether to change vendors or change your house, car, mortgage, etc) will take time to implement and will have an impact on your life/business/happiness for months or years to come. Changing these things is more difficult and should be done carefully. From your Gross Margin, you can now make a choice about how much you will save and how much you will spend. This is where conviction and discipline (tied to goals) is really important. You CAN eat Ramen noodles for a year if you have the conviction and discipline to meet your goals. But much of the time we will allow what feels good now to overpower what will be better for us in the future. It is up to you to decide what is more important to you.
Ways that you can grow profit in a business and ways you can grow wealth or savings personally are similar.
- You can increase income. Increase your skills to seek a promotion or raise, start a side hustle, start your own business, etc. In business, you can launch new products, hire more sales people, expand into new markets, etc.
- You can decrease COGS. In the case of a business you can look for new vendors for high volume items, or renegotiate pricing with current vendors. Every dollar you remove from your Cost of Goods increases the amount of money you have available to pay expenses with. The more you have to pay expenses with, the more likely you are to have something left over as NET profit. From a personal perspective, the lower your mortgage payment, car payments, and other fixed and/or significant payments, the more money you have left over for expenses, and ultimately for savings.
- You can reduce expenses. If building cash is the goal, you would be surprised what you can do without – whether in a business or at home. I would say the KEY is deciding upfront that having cash left over is more important than spending money that you might like to, but don’t have to. In business it’s easy to say “this makes sense” or “that makes sense”. If you look at any one thing on its own you can easily justify it. But if you force yourself to only keep the expenses that are completely necessary, even if it causes a little discomfort, you’ll be more likely to end up meeting your cash/savings goals.
- I have a saying that you could consider. DEFINE the bottom (what net margin or savings number as a percentage of income do you want?), DRIVE the top (What can you do to increase revenue?), and MANAGE the middle (expenses). If you first define what dollar amount or percentage of revenue (or income) you want to save, or have as NET margin, it will quickly tell you how much you have remaining to spend on expenses. Then if you manage expenses to be equal or less than INCOME minus SAVINGS (or net margin) you will achieve your goals. And of course the more you can drive income the more cash you have flowing through.
I hope this is helpful and/or thought provoking!
From Joe, our friendly Safety Supplies Product Marketer:
We have A LOT in the works that I can’t wait to share with you guys. Till then I’ve I’m happy to tell you guys that our KN95 Face masks will be on sale till we run out of our current stock. Act fast! Now is the perfect time to stock up for the months ahead of us.
CK moved to permanently working from home a few weeks back. As much as I love it, lately I’ve been coming into the office more and more, partly because I had too, but now it’s because I want too. Something about seeing coworkers and being in an office environment makes me enjoy my day a little more than being stuck in the house all day. Walking into the office we get our temperatures taken with our handy infrared thermometers and a handful of sanitizer from our dispensers. I thoroughly enjoy coming here and I feel it’s because it gives me a sense of reassurance. Not EVERYTHING has changed, maybe we take a few extra steps to ensure safety, but I still get that same old feeling of walking into the office and getting the day started. Just a thought, I’m sure some of you can relate!
(….. HUMP DAAAAAAAYYYYY!!!!)
Please let me know how I can be of service to you. If you need assistance with something, advice, or even if you just need someone to pray for you, I am here and listening.
Craig Haynie – CEO
P.S. Don’t forget to go follow us on Facebook here: CK Facebook Page.
Main Safety Supplies Landing Page: https://www.cablesandkits.com/c/safety-supplies
If you received this email from a friend/co-worker/complete stranger and want to sign-up to receive it yourself, you can do so HERE.
N95 Mask – Both Kimberly Clark and 3M Models available
Sanitizers, Dispensers, & Wipes
Single Serve Alcohol Wipes – Back in stock!
Lysol Disinfectant Wipes – – 80 count pouch
Motion Activated Desktop Dispenser – Use for Liquid or Gel Hand Sanitizer
Motion Activated Floor Dispenser – Available in liquid/Gel and Spray models – Pre-order now!
Wall models coming soon.
Touchless Infrared Thermometers – Basic and Premium options available
Non-Skid protective shoe covers – FDA Approved. Non-FDA version available cheaper soon.
Disposable arm length Isolation Gowns – FDA Approved
Nitrile and Vinyl Gloves – Back in Stock!
COVID-19 / Business News for Today:
- Over 10,489,000 people worldwide have recovered and over 2,189,000 people in the US have recovered! The death toll in the US stands at 152,300.
- Joe Biden, the presumptive Democratic presidential nominee, said that MLB and NFL seasons are “probably not going to happen” without having all players sequester in one place for the whole season.
- The California government is considering its own $600 weekly benefit if Congress fails to add it to the next stimulus bill. It was not noted where they would get the money to do so.
- Twitter, Facebook, Youtube, and Instagram deleted a video filled with what they deemed as “false” information about the coronavirus — featuring doctors who stand by the use of Hydroxychloroquine as a valid treatment for the Coronavirus — that had been retweeted by Trump and his son. Donald Trump Jr.’s account was limited, and he accused the company of “censoring” conservatives.
- Just days after the start of the Major League Baseball season, more than a dozen Miami Marlins players have tested positive for the coronavirus, prompting them to cancel their games through this Sunday.
- The CEO of Heathrow Airport, John Holland-Kaye, has called on the government to back his plan to begin screening arriving passengers for the coronavirus, adding that without a widespread testing strategy, “Britain is just playing a game of quarantine roulette.”