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What coloured day are you having? (PART 3)

June 3, 2009

finish postToday we’re talking about an ORANGE day. Every one has to work on administration in their business. It’s a part that many people don’t enjoy and often leave it up to others.

They don’t really delegate it. They simply give it to someone else and hope that it goes away. More often than not this does not lead to a good result. If you are delegating administration to others then you’ll still need to check that it is done correctly and you should also review the results and reports produced to make sure you know what is actually going on in your business.

My suggestion is that you do this on a particular day of the week. Set aside a day, or half day when you say to yourself ‘I’m having an ORANGE day today.’ This will help you focus on a job many business owners don’t like doing. So what happens when we have no ORANGE days?

A black one is just around the corner because your business will get into a mess administratively and then something major will go wrong because you forgot to do something.

May be the phone or power gets cut off
or you get a letter from the tax department
or you get an eviction notice from your landlord because you forgot to pay the rent.

Categories: Mindset

What the heck is a balance sheet all about and why it doesn’t make sense?

March 6, 2009

Lots of people get confused by balance sheets because they have no idea what they’re meant to represent.

Have you ever done a project? What was more important; The project milestones or the project plan?

When you compare this to financial accounts, the milestones are balance sheets and the plan is the profit and loss account.

So you can see that a balance sheet shows you where you’ve got up to. It shows you what you’ve accumulated in your business.

So why don’t they make sense to most people? Because accountants often prepare them using the wrong format.

You may have seen a balance sheet that shows; Assets minus liabilities equals Equity.

This is the most common form of balance sheet and also the most unhelpful in the 21st Century.

Here’s how we do balance sheets in the 21st Century.
Working Capital Plus Fixed Capital equals Debt plus Equity.

Think about buying your first home.

Probably looked like this:

    Home (which equals Capital).
    Paid for by:
    Debt (borrowed from the banks),
    Plus
    Equity (contributed by you).

That’s how we do balance sheets because they make sense to the average person who has bought a home. It’s very easy for them to understand.

Think about your business for a minute:
You will have working capital (Inventory, accounts receivable, accounts payable, employee provisions etc.

You will have fixed capital (plant & equipment, motor vehicles etc).
And these will be paid for by:

    Debt (borrowed from a bank) and
    Equity (which is your wealth tied up in the business).

When you do balance sheets like this it becomes easier to understand what you’re accumulating and how you can use this to help you run your business.

Categories: Management