The Secret to Understanding Financial Statements

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How is your business doing? I’ve seen stores that have been around for years that are closing down. And I’ve gotten new clients who are having the best year ever. I’ve also gotten new clients who just went through the toughest financial year they’ve ever had. They’re happy to put the year behind them and use the tax losses to create some nice cash in their pocket as they apply losses to previous years.

If you’re a business owner or investor (or want to be), then you know there are huge opportunities in front of you. You also know it’s a scary thing to go against the trend. This is the time when your business abilities need to be razor sharp. Big companies are falling all around you, which means big holes that you can fill, provided you make the right decisions.

In the past, when it was so easy to make money, you didn’t need to have tight systems and controls. That’s because the market carried you along. A rising tide raises all boats.

So it’s possible that you’ve had businesses that have done amazingly well in the past because you have a good sense of what customers want and how to deliver it. Now, though, you need something extra. You need to add into your arsenal the ability to analyze what’s going on with your business. You need to be able to see the losers fast so you can cut them. You need to see the winners and that hidden gold that’s almost with reach in your business.

There are two things you’ll learn in this email. First, you’ll get Five Strategies to Understanding Your Financial Statements. These are just a few of the strategies and techniques you’ll learn at my new, one time only seminar on February 21, 2009 in San Diego entitle “Understanding Your Financial Statements for Everyday People.”

Secondly, I want to tell you how you can be part of my very exclusive class that will test my BRAND NEW program. In 3 hours, I’m going to teach you everything you need to know to immediately access your personal financial statements and learn how to decipher the story behind everyone else’s.

First, though, let’s talk through just a few of the many strategies to understanding your financial statements.

Five Strategies to Understanding Your Financial Statements

(1) Learn to Read ALL the Financial Statements.

Quick! Name the financial statements you’re going to learn about. I’ll bet you got the Income Statement (aka Profit and Loss Statement) and maybe the Balance Sheet. There’s one more though. I think it’s the most important. It’s the Statement of Cash Flows.
If you’ve ever wondered how come your accountant says you owe taxes and there is no money in the checking account or if you’ve ever wondered what happened to the cash, then you need the Statement of Cash Flows.

Picture the Profit & Loss Statement. It’ll be a little easier at the Understanding Financial Statements for Everyday People seminar on February 21st in San Diego, because I’ll actually give you a picture. (And I will be the person teaching the seminar, so if you’ve got any tax or financial questions, make sure you bring them.)

For now, just picture the statement that starts with Income and then subtracts Expenses. You end up with Net Income. There are a lot of important things to track in between, and we’ll cover those later, but meanwhile just think about the Net Income.

The Net Income is the starting point for the Statement of Cash Flows. You then add in cash changes due to Operations, Investments and Financing. This is actually much simpler than you think it is.

In fact, once you master this important form, you’ll be able to unravel business problems in a heartbeat PLUS spot the potential trouble spots quick.

Many of the problems of the most spectacular business failures (think Enron) could have been spotted by a close examination of the Statement of Cash Flows.

That’s why we’re going to highlight the Statement of Cash Flows as one of the key learning concepts for our concentrated, accelerated learning seminar in San Diego, Understanding Financial Statements for Everyday People.

(2) There is a fatal flaw in the Balance Sheet.

There are a couple of problems with the Balance Sheet. The Balance Sheet is the financial statement that shows your assets and your liabilities. The problem is that while liabilities are going to be accurately stated (or at least they are SUPPOSED to be), the assets can be ‘messed with.’

That’s the fatal flaw. There are actually a couple of ways to do that. World Com was probably the master at manipulating assets so that it actually made the financial statements show that the company made money, when they didn’t. In this case, they didn’t show the expense as something current and thus reducing income of the company. Instead, they showed it an asset of the company. How does an expense become an asset? It’s because it is recorded as a prepaid expense, in other words something that helps in the future.

That’s just one of the dirty little financial secrets that accountants never tell you. I’m working right now on that list of nasty tricks so you never get fooled by these again. We’ll review the entire list at the seminar in San Diego.

The ability to know how to read assets and know where you should raise a red flag is absolutely vital in today’s financial world. There will be a lot of deals coming your way. And some of them will not be honest. Look at the asset column carefully and ask how and why it’s valued the way it is. You’ll save hundreds of thousands of dollars and a whole lot of grief by avoiding deals that are really dogs in disguise.

We have reviewed only 2 of the 5 strategies for understanding your financial statement and I bet you already see how important this skill is. It’s not your fault that you don’t know this! Schools prepare you for your professional life, but no one ever prepares you for your financial life. That’s why I think this training is so vital for today.

The single most important business skill for an entrepreneur today is the ability to read a financial statement.

(3) Cash or Accrual?

You might have heard about the difference between cash and accrual accounting. If not, that’s okay, because I’ll explain that in a quick, easy to remember way so that you’ve got this fundamental financial building block down quickly.

But that’s not where it ends. In fact, did you know that over half the small businesses out there that THINK they are cash basis actually can not legally be? If you’re currently filing your tax return a cash basis, look out. Your business might not be able to claim that and the IRS is going to be happy to prove you wrong.

The problem is if they catch you, you’ve got big penalties and interest (plus the tax due, of course). If you fix it, you might have tax, unless you also take advantage of the tax tricks I’m going to teach you on Friday evening at Before You File: Last Minute Tax Tips for Business Owners and Investors. The Before You File! seminar is in San Diego, on Friday February 20th from 6 pm – 8:30 pm, the evening before the Saturday morning session “Understanding Your Financial Statement for Everyday People.”

There are still a few seats left for these two seminars. You can attend BOTH for the low price of just $69. And, you’ll get a copy of “Understanding Financial Statements for Everyday People” Home Study course, a $297 value, as my thank you for being part of these brand new, information packed seminars. Please go to TWO SEMINARS to sign up and get hotel suggestions at the beautiful San Diego Bay Marina.

(4) Spotting embezzlement and fraud quick

No one likes to think that someone would steal from them. But, they do. In fact, 72% of all medical practices are embezzled from once. And, worse yet, 63% of all medical practices are embezzled from twice!

Doctors are smart. They have to be to get through all the training and school they do. But nobody ever taught them how to read a financial statement.

When it comes to spotting embezzlement, the secret is to watch the ratios. These are common comparisons of expenses to income that you can compare from period to period and to your industry. If you spot something is out of whack, you can fix it quick. It could be nothing wrong, but wouldn’t you rather find out than “hope” it’s all okay until one day you get the phone call that all your checks are bouncing because someone has taken all your money?

Years ago I worked for a big accounting firm in Reno, Nevada. I was right out of school and I was just beginning to learn the game. The firm did an audit of the financial statements for a very lucrative urology practice. The books for the company were an absolute mess. That was puzzling because their controller seemed like a really sharp guy. We spent the whole week trying to puzzle out what was going on because there were entries made all over the place. (Embezzlement Technique #3: Confuse the books.) But as we started to piece it together we found that he had made cash disbursement expenses to depreciation (a non cash account).

On Friday afternoon, the senior on the audit gave a long list of things to investigate and fix to the controller. She was pretty proud of herself in fact. She went back to our firm’s office and said, “He’ll be busy this weekend!”

On Monday, we found out just how busy he’d been. He was gone. He was a citizen of Sweden, in the US on a green card. Over the weekend, he’d liquidated all his accounts and he was gone.

It took weeks to track all the money that he’d taken – hundreds of thousands of dollars.

The Dr. should have been able to trust his employees. He should have been able to count on the accounting firm (us) to spot the fraud. The problem was the bad guy was smart and he had a whole year’s head start on the process. The Dr. never recovered his money.

How much would some Understanding Financial Statements strategies been worth to him? In hindsight, I’d bet he’d wished he’d spent the time to learn a little bit more about his business instead of just working IN his business the whole time.

(5) The need to create a Control Panel.

There are actually two reasons why you haven’t mastered financial statements yet:

(1) No one taught you or offered to teach you in an intensive, accelerated way so that you could fit it into your busy lifestyle (until now, of course), and

(2) It’s too complicated. There are a lot of moving pieces to watch.

A Control Panel has all the numbers you need, at a glance. But still it’s not that easy to read if it is just numbers. That’s why a good Control Panel will have graphs and easy to understand and read barometers of how your business is doing and clearly show you how where trouble may lay ahead.

I’m going to give you the brand new Control Panel one page sheet on Saurday February 22, 2009 in San Diego, provided you sign up for TWO SEMINARS while there is still room. You can quickly analyze exactly where your company is and if you bring along some color pens, you can even color in the lines (or out of the lines, depending on your preference.) It’s that easy to read and understand.

I hope to see you in San Diego!



P.S. I hope you can understand that we’re really keeping the costs down on these seminars. That’s so we can offer both at the low price of $69. So, if you’re taking me up on my offer to let you color your own Control Panel, please bring your own colored pens. I’ll have mine!

P.P.S. There is limited seating, so once the tickets are sold, we simply can not add in spaces. Please make your reservations today at TWO SEMINARS.

P.P.P.S. One more to add! I’ve gotten a couple of inquiries from people who know that I really love to talk to people who come to my seminars. Weather permitting, we may be able to go over to one of the local’s hang out for a no-host bar and late lunch and hang outside on the wharf. We’ll do that Saturday afternoon, after the seminar (and after we have a chance to pack up).

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