Capital Series: Mea Culpa
January 14th, 2010
Copyright © 2010 Integrated Profitability TM
On October 26, 2009 I started this series on “capital” and to date six posts have been made. And every one of them has in intrinsic definitional flaw:
“Capital” includes all sources of funds that may be accessed by a company
I have written each article to focus exclusively on the “owners’” portion of capital. Here’s the issue in a nutshell:
● Capital includes all sources of funds
● Capital includes loans as well as owner investments
● Loans are liabilities
● Capital includes both liabilities (loans) and equity (stock investments)
Unfortunately, in the six posts to date I did not make my focus explicit and, worse, I mis-used the word “capital.” A much better word, given the focus of this series, is “Equity” which is the owners’ investment, or stake, in the company.
I apologize for the mistake. And, make no mistake, it is a mistake. I will go back to every “Capital” post-to-date and make the wording accurate.
If every storm cloud has a silver lining, this episode confirms the importance of several characteristics “Integrated Profitability” strives for:
● Accuracy
● Trust, Honesty, Integrity
● Full Disclosure
● Responsibility
● Accountability
I sincerely apologize for this mistake.
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 49
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
Numbers People in Action: Finance Analysis
August 18th, 2009
Copyright © 2009 Integrated Profitability TM
A further continuation of the suggestion that came in to “…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…” The first article set up the simple scenario, the second dealt with Accountants & Bookkeepers, the third with basic Finance reporting. This article focuses on the analysis that Finance does.
The third step for Finance is to provide analysis and interpretation of the numbers. To the extent possible from the general ledger accounts, Finance will dig into changes in the numbers and provide explanations as to what is causing those changes, as well as identifying interconnected events. They use the information they have reported: what the number are and how they have turned out. The analytical stage focuses on explaining the numbers, and their movement, in terms of what is happening with the business creating the numbers.
For example,
● if the expense figure for the snacks has increased, it would be good if sales revenue has also increased. Even better if it has increased at a faster pace.
● if the amount in inventory is increasing, a fall off in sales would help explain what is going on
● if net profit is increasing, a decrease in expense or an increase in revenue would help explain the beneficial outcome
But what if things aren’t moving in expected, or at least hoped for, ways?
Numbers People in Action: Basic Finance
August 13th, 2009
Copyright © 2009 Integrated Profitability TM
Another continuation of the suggestion that came in to “…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…” The first article set up the simple scenario, the second dealt with Accountants & Bookkeepers. Now, it’s time for Finance.
Once the close is completed, the Finance Folks grab the numbers-baton and start running. The first step for Finance is to review the numbers from the general ledger close. The purpose of the review is to do a high level check as to whether the numbers “make sense,” whether they past the tummy-test. If something looks out of the ordinary, or outside expectations, Finance will immediately go back to the Accountants and ask for confirmation that the abnormality is accurate: that is, the numbers are an exact reflection of a business transaction.
For example, let’s say sales have been running at $XXX a month for the last six months but this month, they are only 50% of that number (or, better, 150%!). Before involving the Accountants, Finance will first check comparable periods in prior years. If there IS an annual dip (or bump) in sales in this particular month, then there is no question. It is a normal part of the business. If not, the details need to be obtained from the Accountants (who certified the close).
Numbers People in Action: The Scenario
August 6th, 2009
Copyright © 2009 Integrated Profitability TM
A suggestion came in to
“…include a simple but meaningful scenario which you’d have the three Numbers People work through to posting, reporting and interpretation and planning…”
This is a great idea. It forced me to think about how the Numbers People work, and why they need to work together. This should be fun and, hopefully, enlightening.
First, a simple scenario. In the beginning, before the Numbers People, there are the Business People: those who come up with the ideas that become a business. Without a clear outline of a concept, and details about the transactions that will make the business successful, there is nothing the Numbers People can deal with. If Business People cannot describe what it is that will generate profit, the first wave of the Numbers People, the Accountants, can’t specify what needs to be done with the numbers associated with the business.
If the Accountants can’t set down the rules, the Bookkeepers can’t post the numbers.
If the Bookkeepers can’t post the numbers, the Finance people can’t do any reporting.
Without reporting, there is no analysis or interpretation.
And without conceptual or historical data, there can be no planning.
This initial step, taken by Business People, of describing how they are going to make money, explains why Business Plans precede Financial Plans.
Number Games
July 2nd, 2009
Copyright © 2009 Integrated Profitability TM
Any blog on finance and profitability must deal with numbers. Which can be tedious and boring. One of the main points behind the “Small Business Finance & Profitability” is that owners and other stakeholders in the business need to actively understand those numbers: which are reporting the direction and health of your business. You can hire others to do the tedious chores, as long as you hire trustworthy and conscientious people. But what can never be sub-contracted, at least not without major risk, is the knowledge of what the numbers are telling you.
An earlier blog, “Numbers People,” provided an introduction to types of jobs and careers that are involved with company numbers. At the end, it was stated that some functions should be separated to some extent as a matter of prudent “checks & balances.”
Here’s an example from a large company. Let’s say the company is experiencing a squeeze on profitability because of a very tough market. Sort of like the one we are in right now. Further, a mandate comes down from management that the whole company has to cut expenses.
Numbers People
June 18th, 2009
Copyright © 2009 Integrated Profitability TM
Several blogs ago, I made a light-hearted distinction between accountants and finance managers (Finance is zzzzz….). We received a request for more differentiation between the two professions. In my mind, there is a big difference between the two; but I might be like the Eskimo who has many words for snow, each one dependent upon the physical characteristics of the white, cold stuff covering the ground. Above the Artic Circle, some types of snow are your friends while others might kill you.
Let me hasten to clarify: different “numbers people” won’t kill you. But the right ones might keep you out of bankruptcy court or jail. The best ones might help launch you in the opposite direction and really benefit your company.
While I was thinking about the request, it dawned on me that the World of Numbers is inhabited by a number of strange creatures (what? I can’t slip some word play? Contrary to popular belief, numbers people have been known to engage in humor: it’s just different. Takes getting used to. Like wasabi).
I hope it’s clear, but here’s the disclaimer: what I am about to write is my personal view of the various types of people and jobs associated with financial numbers. Others will no doubt have different views but that is the beauty of a diverse and dynamic world.
In the arena of financial statements, there are three main job functions: accountants, bookkeepers and financial managers. These three work together to create and report on a company’s financial position.
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