Thursday, July 18, 2019

Don’t Overlook The Benefits of a Mid-Year Financial Review

𝗠𝗶𝗱-𝘆𝗲𝗮𝗿 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗿𝗲𝘃𝗶𝗲𝘄: Take a pulse of your company, compare where you thought you were going to be vs. were you are and analyze the variances.

𝗬𝗼𝘂 𝘄𝗶𝗹𝗹 𝗱𝗶𝘀𝗰𝗼𝘃𝗲𝗿 𝗼𝗽𝗽𝗼𝗿𝘁𝘂𝗻𝗶𝘁𝗶𝗲𝘀 𝗼𝗳 𝗶𝗺𝗽𝗿𝗼𝘃𝗲𝗺𝗲𝗻𝘁𝘀 and will identify changes you need to make to have a very successful year.

Performing a business “Mid-year financial review” helps you be aware of your current results and is the base for where you are going to be by December 31/2019

Soledad Tanner, M.I.B

by Jacquette M Timmons 

We are officially mid-way through 2014. True, this isn’t a newsflash. But did you know this a perfect time to do a financial review?

I know, I know, your mind is set on relaxing and having “hot fun in the summertime!” Who wants to (strategically) think about their money right now?

Yet, this half-way point represents a perfect time to do a review of your money and money-based goals. The slower pace is an invitation to pause, evaluate, reflect and perhaps press “reset.” Something you’re likely doing professionally, anyway.

Even if you’re not steeped in a traditional “corporate” work environment, you might be engaged in a mid-year performance review process of some sort. So, why not do the same when it comes to your finances? Why not take a pulse check and compare where you are vs. where you thought you’d be by now – six months into the year?

This makes July the perfect time to apply the concept and exercise of a mid-year workplace performance review to your finances.

A financial review allows you to identify opportunities you may have overlooked up to this point and/or to identify tweaks that will enable you to course-correct for the six months ahead.

Here’s a three-phase “looking” process, along with questions, that will: 
  • ensure you stay conscious about what’s going on with your money, and 
  • also potentially set you up to experience (even more) financial success and finish the year strong.
Looking at Now
  • Pull your banking, investment and credit card statements – what are your current balances?
  • What habits are you practicing daily, weekly, monthly?
  • How do you feel – excited, energized, lethargic, dismayed, or something else?
Looking Back
  • What goals did you set at the beginning of the year?
  • What habits did you commit to changing or developing?
  • How do these measure up to where you are now? Are you on/off track?
  • What mistakes (in action or judgment) did you make?
  • What did you accomplish?
  • How proud do you feel about the progress you’ve made? How disappointed do you feel about where you’ve fallen short?
Looking Ahead
  • As a result of the two phases above, do you need to change any goals or any of the parameters you’ve established for achieving them – in other words, is a “reset” in order?
  • What new goals or habits would you add to your plate for the next six months?
  • If distractions and unexpected commitments threw you off-course, what do you intend to do to minimize how these may negatively impact you moving forward?
  • What would make you feel most satisfied when 12/31 arrives?

Performing a financial review is not only helpful for confirming what has happened and shedding light as to why your results are what they are, but it can also serve as a preview for what’s to come.

This exercise can help you objectively assess and adjust the choices you’re making and provide insight as to the ones you’d benefit from making. Additionally, it can highlight if the systems, processes and framework you have in place are as supportive of your efforts as you think they are and need them to be.

Are you dreading doing this financial review because it’s summer; because you don’t want to face what you’ll discover; or both?

Well, remember this: it’s perfectly fine for you to be in vacation mode…your money, not so much! Your money should be working for you 24/7/365.

Second, if you’re concerned about how long this will take, then break it down – carve out three (3) 30-minute windows – maybe during lunch – to address each phase noted above.

Finally, focus on the power you’ll gain from the insight you’ll discover as a result of having a meaningful conversation “with” your money.

Need another incentive to perform a mid-year financial review? Just like any other relationship, your money won’t grow as much as it could without your purposeful attention, direction, and action.

Friday, June 28, 2019

International Focus Magazine Houston - June 2019 (G7 Soledad Tanner Consulting Award)

Interview Part # 1 Page 42 - 45

Interview Part # 2 Page 44 - 46

International Focus Magazine Houston - May 2019 (G7 Soledad Tanner Consulting Award)

How to Read and Analyze an Income Statement


By: Heather Liston MANAGING

Ever feel a little left ut when people start chatting about P&L’s? How about when the talk turns to income statements, or profit and loss reports, or even a “statement of activities”? The first bit of good news is that all of these refer to the same thing, so you may not have as much to learn as you thought. The second is that an income statement is based on a few very simple concepts, which you already understand.

The basic suite of financial statements a company produces, at least annually, consists of the statement of cash flows, the balance sheet (or statement of financial position), and the income statement.

The ones that people most often look at (and most often pretend to understand), are the latter two. The major difference between them is this: the balance sheet is essentially a snapshot, while the income statement is a movie. In other words, the balance sheet shows what you own (assets) and what you owe (liabilities) at a moment in time (most often as of December 31). The income statement shows what happens over a period of time (usually a year): what comes in, what goes out, and what’s left over at the end.

Here is an example of a basic income statement, covering the period of one month:

Revenue (or Gross Income):

Allowance $2.00


Candy ($1.50)

Net Income
: $ .50

See how that works? The top section lists money coming in during the period, the middle section lists money going out, and the bottom line is the difference between the two. All the math you need to produce or proofread this statement is a little basic subtraction.

Now flip open the annual report of any Fortune 500 company and find the income statement. What you see, in basic concept and structure, will be exactly like the one above. The only difference is that it has a lot more lines.

The annual (financial year ending Sept. 30) income statement for Apple Computers.

As companies get larger, they start making a few common variations on the structure. Many, for example, have a section at the top that starts with total revenue, then subtracts “cost of revenue” and shows the difference as “gross profit”. The “cost of revenue” line is the total of all expenses the company deems to be directly related to generating the revenue, such as the cost of purchasing inventory. From the gross profit, they then subtract normal operating expenses, like administration and research and development, which leads to another sub-total called, usually, “operating income,” or, more jargonistically, EBIT or EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization). From that, obviously, interest and taxes (and maybe depreciation and amortization) have to be subtracted before the statement shows the final net income line.

All the complexity sketched out in the previous paragraph, though, is nothing more than a little rearrangement of the basic elements—income and expenses—into some sub-categories. The same principles still apply, even when things start to look complicated. No matter what, the income statement includes just income, expenses, and differences between the two. And income is always listed before expense in any group; it’s just that some companies do more sub-grouping before they get to the bottom line.

No matter what twists and turns you take along the way, the last number on the income statement is crucial. It is labeled “Net Income” above, but it also goes by names like “surplus,” “the bottom line,” or maybe “contribution to savings.” If the bottom line is a negative number, it will most often be called the “deficit” or “loss.” The math and the meaning are exactly the same; these are purely terminology issues.

If you’re asked to review an income statement and you’re not sure where to start, here are a few things to do:

1. Check all the math.

Yes, errors occur even in printed, published statements; even in ones produced by major companies. If you find an error, you look smart—and you might also uncover something that changes the results completely. Also, as you run through the adding and subtracting, you will improve your own understanding of exactly how the numbers fit together.

2. Find the bottom line. (Should be easy—it’s at the bottom.)

On a very basic level, it’s good to see a positive number there. That means the company earned more than it spent during this period. That means it can pay its employees, keep the lights on, and not be forced to borrow money. But if that bottom line is preceded by a minus sign, or printed in red, or enclosed in parentheses, then expenses exceeded revenue. Find out why. And what the plan is for making the red turn to black.

A net loss once in a while does not necessarily imply disaster. Sometimes new companies have a lot of start-up costs and do not expect to turn a profit in the first year or three. Or maybe the business in question is a cyclical one, like agriculture: if your company grows corn and there was no rain this year you will likely show a loss. Perfectly normal; some years are up; some are down. On the other hand, if net losses become a trend, or if the company does not have enough cash to fund its expenses during the down times, there could be a problem.

3. Look at the sources of income.

Do they make sense for the business? For example, if you’re in the cotton candy business, then sales income from the county fair sounds right. But if one income line is “gifts from friends” that’s probably not sustainable. What about next year when those friends don’t come through again?

Or say you’re reviewing the statements for a museum. Ten percent of their income came from admission fees last year and 90 percent came from ticket sales for a special blockbuster exhibit that came through town. Fine, as long as there will be a new blockbuster exhibit every year. If that was a non-repeatable event, though, you will want to ask questions about whether the revenue model is sustainable.

4. Look at the expense categories.

Are they logical? For most businesses, you will see salaries and wages, insurance, rent, supplies, interest, and at least a few other things. Is anything missing that you would expect to see? For example, if the business has a hundred employees and you don’t see rent, or mortgage interest, find out why. Is there an office? If not, why not? If yes, how is it being paid for?

5. Now look at the amounts: What are the biggest expenses?

If this is a service business, expect to see a large number for salaries. If it’s a manufacturing business, materials and supplies may logically be a significant total. On the other hand, what if you know the company has only three employees but the salary line is extremely high? Is someone being overpaid? Are there more people working there than you realized? Or what if the president told you the company has been profitable for years but you see high interest expense? Find out why the company is borrowing money, and from whom, and whether they’re paying a reasonable rate.

6. Compare year-over-year numbers.

Usually, the income statement will have separate column showing the figures for the prior year. If the document doesn’t already show the percentage change in every category, calculate those numbers yourself. Question any significant changes. Like, why is sales income 50 percent lower this year than last? Why is insurance 20 percent lower? Did the entity rack up such a great safety record that the insurer lowered its rates? Maybe. But maybe the reduced insurance number has a negative cause—like one of the policies was canceled and the company is at risk in some way.

7. Think about logical relationships between numbers.

For example, at most companies these days employee benefits (like health insurance, retirement plan contributions, parking passes) are a significant cost. If the salary line doubled but the benefits number went up by only 10 percent, that should strike you as odd. Is there some reason the new employees do not qualify for benefits? Did the company drop one of its benefit plans?

All these questions may have perfectly reasonable answers, but sorting through them will help you understand what’s going on, and give you confidence that you know what you’re talking about when it comes to income statements.

You do. Revenue minus expenses equals the bottom line. Everything else is details.