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This episode is a business coaching course designed to explain cash flow statements.

Results-Focused Training, Tools, and Workshops from Expert Business Coaches.

Featured Coaching Excerpt - Notes & Transcript, Part 1
  • Cash Flow: A measure of an organization's liquidity that usually consists of net income after taxes plus non-cash charges against income.
  • Lesson Nugget: A cash flow statement is everything that happened with your company's cash, both coming and going.
  • Lesson Nugget: The cash flow statement covers a certain period of time.
  • How Cash Gets Used: 1. Operations - General Business Activities
  • Depreciation: You are allowed to expense a certain amount of your equipment over the course of its useful life. This expense will reduce your net income and therefore your tax liability, but it does not have an impact on cash
  • How Cash Gets Used: 3. Financing - Taking or Giving Out Loans
  • How Cash Gets Used: 2. Investments - Large Investments (like Equipment) in Our Business, Both Buying and Selling

business mentoring better than lynda, time management

-Hey, my name's Clay Clark, and I'm the CEO of Thrive15.com, the online platform that provides training in the areas of time management, sales, marketing and more, and today I am joined with Tim Redmond. This is a beautiful man with a plan who I used to intern for his company back in the day, and he grew his company from 2 people to 450 people before they ultimately sold the business, and I think they all moved down to Mexico and are sipping margaritas full time, but the point is he has had a lot of success. And today he's going to be teaching us specifically about the concept of building a cash flow statement. He's going to be teaching us specifically how to make one of these statements where you know how much cash is coming in, how much is coming out, where the cash is going. And if you don't know this stuff, it's impossible to start and grow a successful business.

So it might not be the most exciting topic of the world, but I can tell you this. It's exciting making money, so you want to pay attention. Remember, at Thrive15.com, we all believe that knowledge without application is meaningless. So as you are watching today's episode, take the time to ask yourself what can you do to uniquely apply this principle, this specific lesson, in your own life and business. Otherwise, today's episode may be more meaningless than a movie critic's review of the movie "Good Burger."

Tim Redmond, how are you, sir?

-Doing great. You doing good?

-I'm doing well. I feel like that might have been the perfect handshake, and I feel like it's off to a good start here. Now, we're here to talk today about cash flow statements. A lot of entrepreneurs are watching this. A lot of aspiring entrepreneurs have no clue what this word means, so if someone says cash flow, and they hear wah, wah, wah, wah, wah, wah, wah, wah, wah, wah, wah. It doesn't matter when they hear it. They just don't know what that means, and because they don't know what it means, it's hard for them to master it. It becomes a source of anxiety, so we avoid it. We're going to talk about cash flow.

So Webster and his gang of dictionary writing buddies, they defined cash flow as a measure of an organization's liquidity that usually consists of net income after taxes plus non-cash charges against income. What are we talking about, and what does the word liquidity mean?

-All right, liquidity is your capacity to use money, really. And so we believe-- you and I believe cash is king in a business. We want to manage with good systems. We want to manage with discipline and implementing good systems, and sales, and marketing, and all that we do to help our clients, help our thrivers here. What we want to do-- and the cash flow statement is rarely referred to because a lot of people just don't understand it. Even accountants don't understand it, but all we're doing in a cash flow statement is we're saying, listen, here's all the major activities of what happened with cash. Here's where it went, and here's where it came from. And so it's getting a really good idea of what all happened to cash during this certain period of time, and here's the net cash activity. Let's take your cash balance at the beginning of the period, and it should equal your cash balance at the end of the period.

-Why do I have to know this?

-It's very important in cash management. Most businesses have to shut down because they run out of cash. Now, I don't believe that most businesses have problems because it's a cash flow management-- it's because it's a lack of management, or a lack of business know how, or a lack of discipline, or whatever, but it always shows up. Your bad decisions or sometimes there's unpredictable things that happen in the economy that we don't anticipate-- whatever it may be, the series of decisions in your business always shows up in the cash account. It always shows up in the cash account, because really eventually we're going to sell our product. We're going to collect our receivable. We're going to pay our debt, and it's all going to come in and out of that cash account.

-Makes sense. Now, Tim, let's kind of dive into this cash flow statement here, and let's just kind of work through it methodically. And explain to me what all these things mean, and let's just assume nothing. Let's assume that I don't know what any of these terms are.

TIM REDMOND: All right.

-Let's go through it.

-So with a cash flow statement, really we're wanting to know what happened to our cash during a certain period of time. Like an income statement, a cash flow is over a certain period of time. It's not like a balance sheet to say, well, here's our net worth at this one point. This is over a period of time what happened with our cash. And there's three main divisions of a cash flow statement, or three main ways that cash is used in a business. All right?

The first one is from operations. Operations are like, well, what are you in business for? Well, I'm here to sell hot dogs. That's what we were talking about before. And based on the amount of hot dogs that I sell and based on the net income that I have, I'm going to show-- let's say I have a net income of $2,000 that I made over this one year period of time during the year we're talking about00 $2,000 of net income. So I'm going to put that on there.

Now, there's some other elements of non-cash items in your income statement. I don't want to go into those so much, but depreciation, amortization, things that really don't cost you money in your expenses, but the IRS allows you to deduct them. And the generally accepted accounting principles allows you to deduct them. They don't really cost you cash. Depreciation is just an amount-- let's say if you have a car, you depreciate it $2,000. You didn't lose $2,000. You didn't have to pay out $2,000. It just reduced the amount of money that you spent on that in depreciation.

So those things are actually added back into the net income. I didn't show those, but for real anal kind of people that really know all this stuff already, we're keeping it relatively simple. So we have a net income. This is from our operations.

And then we're going to invest in our business, and we're going to get new loans and pay off those loans. Those are the three areas-- is from selling stop and our expenses having to do with that. And then investing, expanding our business, and then paying off our debt, or getting new debt from it-- that's really the three areas.

So let's just say-- in this example, let's say that we sold our old concession truck. And it was an old beater, and it was worth $5,000. We got some sucker to buy it for $5,000, and we're happy. He's happy. Everybody's happy.

-We have a sentimental attachment, though, to the food truck. You can't really put a price on that, because we've bought it for--

-And that and I think that's going to be another thrive item that I'm going to-- another thrive session I'm going to have you do solo.

-About the sentimental value of--

TIM REDMOND: By yourself.



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Featured Coaching Excerpt - Notes & Transcript, Part 2
  • Lesson Nugget: In accounting, parenthesis () are many times used for negative numbers.
  • Lesson Nugget: Cash is such an important component of a successful business, it is advised that you keep track of cash on a daily or weekly basis.
  • Lesson Nugget: Schedule a time for looking at your cash flow, and have written out questions for yourself when examining your cash flow. Ask where you are at currently, where is the cash currently going, where is it coming from, etc.
  • Lesson Nugget: If you don't know your numbers, you can't know whether you are making money or not.


-And then let's say, OK, well we sold our old truck. No we're going to buy a new truck. But we had to pay $10,000 for that. Now we got $5,000 for the sale of it, that's money come in. We have a cash flow, the money, the cash flows flowing in and out. We're going to keep track of that. So we bought that new truck for $10,000. OK?

So that's money going out, so we're going to have that as a negative amount. We have a negative either by a minus sign in front of it or parentheses. It means the same thing. OK? So we have operations, or selling stuff, expanding stuff, investing in stuff, and then also paying stuff off. OK? So cash flow from financing.

Let's say we get a new loan. We had some money in the bank, and we had some ways of being able to get this purchase of equipment, this new truck here. And we got a loan for $5,000, because the rest of it we could pay for.

And then we pay out, we still owed $7,000 on the old loan. We wanted to make sure we pay that off during this time just to get that off the books. We payed $7,000. There's money going out the door.

And so what we do is we add up all three major activities. What's happening with the cash? Plus or minus, plus 2,000 plus 7,000 minus 10,000 plus 5,000 for getting a new loan. You got new money coming into the business. You paid off the old loan, money going out $7,000. So we had a net decrease of our cash, our cash activities are $5,000.

-And just to make sure we're clear, anything in parentheses that also means minus.

TIM REDMOND: Minus, yeah. A minus or parentheses is a negative number. So that's money going out of the business, the positive numbers are money coming into the business. We're just taking, because cash is so important, we have a whole statement built around just the cash.

-How often should an entrepreneur be looking at their cash flow statement? Monthly, weekly, daily, what?

-I was just talking to a client yesterday, and we are requesting from the accountant a daily cash transaction report. It's not all divided up in this necessarily, but it's keeping track of the cash on a daily basis. Now I would recommend a daily or a weekly basis you're keeping track of your cash balance.

-Daily or weekly? So you're meaning every entrepreneur should schedule time in their schedule, put a time in their schedule to look at their cash flow statement daily?

-Most successful business owners, especially when their business is small, they have a way of looking at their cash balance. They looked at their bank, they look at the transactions that may not have hit the bank and they know exactly where they are--


---on a daily basis how much cash they have.

-Boom. I just want to make sure we're not missing this, because this is something you just mentioned we have to do daily.

TIM REDMOND: Daily. And we're talking about three minutes, three minutes. Now we have another session on time management that I'd like to be able to bring through. What do I do when I create a master to do list, and I create my weekly and daily schedule, I actually have a set time, set pattern, set place to do that with. So I have set questions that I ask myself every day. What is my cash balance? Where am I at with my cash? And Clay, how many times have you had a client, they're ready to make a decision, but they don't have a clue where they are with their cash.

-I'd say it's about half.


CLAY CLARK: I'd say 50% percent of clients, they've been in business for five years or more. They know they have just enough money to pay off their credit card or to make a payment on their credit card or to buy groceries, whatever they're doing. But they have no idea how much cash is in the business. They have no idea how much is owed to them, how much is coming, how much is, it's like this big nebulous blob.

TIM REDMOND: OK. But let me just say this. OK. If I look at my cash every day, it's depressing. I just want to go home and not work. What do you say to that?


TIM REDMOND: It's just emotional for me, Clay. This is hard. I mean, I want to have more money in there, and if I look at it, I get depressed.

CLAY CLARK: Specifically, I think about a restaurant that I worked with years ago. And I ultimately didn't work with them, because their stuff was so crazy. But I sat down and showed the lady the math, and I said, "On every transaction that you do, just doing some rough math here, you're losing money. Every time a customer comes in, based upon how your cash flows working, I'm showing that you actually took a large amount of money that your husband left you when he passed away, and every transaction you lose about $0.10 or $0.20. So the longer you're in business, the more transactions you do, the more money you lose." And just didn't want to--

TIM REDMOND: She was clueless with that whole thought.

-Had no idea. And I wish that she was alone, I wish she was the only person. But I would argue that this thing that should be happening daily in every business across America, I mean it should be a bill across the Thrive nation. It's like 5:00 AM, 7:00 AM across the nation, 9:00 AM, 10:00 AM, whenever time you have. Every day.

TIM REDMOND: Where's my cash balance?

CLAY CLARK: Every day.

Featured Coaching Excerpt - Notes & Transcript, Part 3
  • Lesson Nugget: Effective business owners are constantly aware of their cash flow. They know where it needs to go and where it will come from.
  • Lesson Nugget: Cash is to companies as water is to humans.
  • Lesson Nugget: Hire someone to set up your cash flow statement and explain how it works for your company.
  • Lesson Nugget: Be prepared to constantly adjust your business to optimize it.

-And then, you know, you want to know on a cash flow basis, and effective business owners, what they'll do is they'll know where their cash balance is, and then they'll know what's going out. They take a look at their accounts payable, and they look at their accounts receivable, and if they don't have those things, which I applaud you if you don't, but they know that we have certain bills.

We have utility bills going out, we have the rent going out. We have the car payment, the truck payment going out. And I know that we've got this event going on, and I anticipate we're gonna have this much money coming in. May be wrong. But they're constantly aware of cash, because cash is the commodity we use to grow our business, to invest our business for people that believe in us.

If we can manage our cash right, bankers trust us, investors trust us. People want to put more money into is if we can manage that cash well.

-Cash is like water. I mean, for humans, water is what is needed to sustain life for animals. You need water. And cash is like the water for your company.

-It really is.

-It kills everything.

-It really is, and so we want to come up with-- and don't look at it as this big, ominous, big task to do. You set up a pattern at the beginning of your day, you look at your cash balance, you take a look at your bank accounts, and then you look at your books to see where we are with our cash, and we know that certain transactions are going out this week or next week.

For many clients, Clay, I've said OK, let's set up all of your monthly obligations and when they happen in the month, just so you can see this on a sheet of paper. You're looking at your cash balance over here, you're looking at, oh, I know this, and this, and this is going up. It's not a big surprise. And so they can begin to manage their cash in a much better way.

-I love it. Now Tim, for anybody who's watching this and they feel like, man, I need to get started, I need to get after this, again, I think we go back to you really need to hire a bookkeeper to help you set this up. A bookkeeper can do it without the drama, they're going to do a great job, whereas an entrepreneur, it might overwhelm you. I mean, don't we need to hire a bookkeeper?

-Yeah. I would recommend getting somebody that's already familiar with this, and can explain to you-- and I do this with all of my clients, I explain to them, why is each one of these numbers important, and what is that telling us, and what can we do about these numbers? What do these numbers mean? Because again, the numbers represent your decisions that you made. Your disciplines you have, or you don't have.

The actions you've taken, and the procrastination you've been putting off things, and so it's this summation, these numbers reflect the behaviors and the actions, and how you're managing your business. And so if we want to improve the business, we take a look at the numbers. They make sense to us, and we make adjustments. And to be a successful business, you don't just set up a business, you manage a business.

A business has a thousand adjustments in a given week alone. It's an ongoing management and adjusting to optimize the performance of it.

-Tim, I cannot tell you how much I appreciate you making this simple and breaking it down in terms we can all understand, and again, on behalf of all the Thrivers, I want to tell you thank you for coming in and investing your time, and mentoring us and teaching us some of these things. And I want to encourage you, if you're watching this and you feel overwhelmed, the great thing about Thrive is you can watch it as much as you want. So just keep watching it, and eventually it'll sink in to your cerebellum, and you will get it. So thank you so much.

-Very good, Clay.

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