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The Easy Way to Monitor Your Financial Health
Money problems can be avoided by monitoring a few key financial areas. The good news: you don't have to be a wizard at financial statement analysis; you just have to be vigilant.

Cash on hand: Monitoring cash balances is a simple process. It just requires a regular glance at your company's balance sheet. Bank accounts appear at the top of this report, and you should frequently compare account balances over time.

Determining whether you have enough cash on hand involves some quick math. Cash, plus the receivables you expect will become cash within a month, should exceed the near-term debts you owe - called "current liabilities" on the balance sheet. Current liabilities include credit card balances, payroll taxes, sales tax, and other upcoming amounts you expect to pay.

Spending: A significant number of business errors are the result of not knowing where the money is going. Money should be spent for things that simplify your business and make you more productive. The income statement (also called the profit and loss statement) will help you evaluate your spending habits.

Here you'll find the percentages of each expense category relative to revenue. By comparing this report over multiple periods, you'll discover how your expenditures may have changed as percentages of revenue.

When business is going well, you'll want to keep spending the same percentages of revenue for the expense categories that are variable. With fixed expenses, such as rent and telephone, what will hopefully be an increase in sales will cause the percentages of revenue for these categories to favorably decline.

Clearing Up Some of the Confusion Over the Cloud
Everyone uses cloud computing, but not everyone gets it. Simply put, whether you're searching online, creating documents with web-based software, or accessing a web-based e-mail account, you're using the cloud.

Cloud computing means that the infrastructure enabling your web tasks is accessed via the Internet. The processing, storing, and filtering of information is done through a server that may be thousands of miles away or just next door. And as this activity happens seamlessly and invisibly, it seems to be happening "in a cloud."

The pros of cloud computing are many. With cloud services, you eliminate the up-front capital cost of computers and peripherals, as well as the need to buy and maintain software licenses. Others have to worry about virus attacks, and you don't have to back up files. Plus it's quick and easy to add applications and purge those no longer needed.

But convenience has a downside. Up-front capital savings will likely become ongoing operating costs. And with cloud services, you may be limited to off-the-shelf solutions rather than tools designed for your specific needs. As well, suppliers may stop supporting a product you depend on, and there are privacy and security issues that arise because your data is on someone else's system in an unknown location.

The search for a "better" cloud has been under way for many years. Edge computing, which brings the processing of data closer to home, is one alternative. And there will be more: these days the cloud - or something like it - has become virtually indispensable.

Commuting: Getting There's Not Half the Fun. But We Do It
Despite the advent of the mobile work-anywhere-anytime economy, computers and smartphones have not yet replaced brick-and-mortar offices.

According to a Pacific Standard article recently reprinted in CityLab, "the vast majority of us still travel to work most days: only about 2.8% of the total workforce says they work from home 'at least half the time.'"

Since 1980, when the Census Bureau began keeping track, commuting time for the average American worker has increased by roughly 20%. A typical worker now spends over 26 minutes commuting each way, and some spend more than an hour and a half a day. In areas such as New York or Los Angeles, "extreme commuters" may travel two or more hours each way, often journeying by car, train, ferry, bus, bicycles, and/or foot in the same trip.

When asked, most people say they hate commuting. It's unproductive, unpaid time. It's costly, it's environmentally unsound, and it wastes gasoline. Plus, it's stressful. Commuting is associated with high rates of anxiety, depression, obesity, cardiovascular disease, and other maladies.

Workers would prefer to work from home.

So, why do we still commute? The reality is that for many companies, technology is not a good substitute for face-to-face interaction. Existing technologies such as e-mail, instant messaging, and even Skype just don't convey information efficiently or get across nonverbal cues like body language, facial expressions, and eye movements. Especially in group meetings.

The solution, some believe, may lie in virtual reality (VR). In a Pacific Standard article, Jeremy Bailenson, head of Stanford's Virtual Human Interaction Lab, suggests that test subjects seem as comfortable dealing with avatars as with a flesh-and-blood person.

The upshot: VR may soon spell the end of the unhappy commuter.

Find the Narrative in Your Financial Statements
Reliable financial statements are essential for every business. Small companies included. To fulfill your vision for your company, you need to use, and understand, your financial statements, with the help of your team: your accountant and your bookkeeper.

The narrative: By design, financial statements summarize past events. They're only relevant to future action when accompanied by explanations. Simply recording transactions and not studying the resulting financial reports accomplishes little. Similarly, don't let complacency take over when you receive financial information from a professional bookkeeper. Instead, examine and learn from it.

Understanding all the elements in financial statements is often challenging. For instance, a business may have a profit but insufficient cash. The income statement doesn't indicate cash paid for unsold inventory, loan payments, new equipment, owner distributions, or income tax payments. Therefore, along with the balance sheet and income statement, a cash flow statement is an important component of financial reports.

Cash in the bank is like insurance against uncontrollable events. For any business, shifts in the market can arise suddenly. Be prepared with enough cash to survive events like reduced customer orders or the need to replace equipment.

If you check the financial statements of a large organization, whose securities are listed on a public stock exchange, you'll find an analysis and discussion by management. Your bookkeeper can give you access to similar types of information on your company; he or she can highlight major trends, identify recent issues, and point out any red flags in your financial statements.

The significance of financial statements comes in knowing what they convey. Wise business owners, with support from their bookkeepers, are always aware of year-to-date sales, profit margins, changes to primary expenses, debt ratios, payroll hours, and the collection of receivables. They recognize when inventory on the balance sheet isn't worth the stated cost and when receivables should be written off, as well as the tax implications of selling particular capital assets.

Own the numbers: If an accountant issues a compilation of your financial statements, a cover page will accompany this report. Read the language describing the accountant's responsibilities. The accountant assumes no responsibility for any of the numbers. Rather, the compilation report clearly states that the figures are the responsibility of the company's management. Even with fully audited financial statements - which are uncommon for almost any small enterprise, because they're costly and usually unnecessary - an accountant only provides reasonable assurance that the statements are free of material misstatements.

The takeaway is that company management is responsible for the financials. Hence, you must take ownership of the financial data and understand every line on the statements.

Your business tax return: Be aware that the internally prepared financial statements of a small business are commonly adjusted for tax reporting purposes. Tax returns treat assets differently, don't allow deduction of some expenses, and distinguish certain incoming cash from ordinary sales income. Ask your accountant to explain how your tax return reconciles to your financial statements. Your financial team members are available to explain the complexities. So use them!
Michele Ball
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Back to Basics
As a business owner, you wear many hats. How can you decide where to focus your efforts for personal and professional development? Try going back to the foundation of successful entrepreneurship. The following links can provide the building blocks:

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Remember starting up? This start-up primer may reenergize and reinspire you:
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This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.
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