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Which way does the Cash Flow?

If the three types of business activities are operating, investing, and financing, then there needs to be a way to provide information about the money going into and out of each piece. Thankfully through the miracle of modern accounting, we have a statement that does exactly that.

The statement that tracks these fluxuations in the cash flow is quite logically called, the ‘Statement of Cash Flows’. From this statement you can easily determine how a company is treating that little recourse that they work so hard to aquire.

Here is a sample statement to show you the three areas and their relationship to each other. You can see that it is in essence three cash flow statements (one for operating, one for investing, and one for the financing activities) wrapped up into one overall master statement.

Aridni
Statement of Cash Flows
For the month ending December 31, 3000
(In Gazillions of Planet Aridni Dollars)
Cash Flows from operating activities
Cash receipts from operating activities
Cash payments for operating activities
$11,200
(5,500)
Net cash provided by operating activities $5,700
Cash Flows from investing activities
Purchased office supplies (5,000)
Net cash used by investing activities (5,000)
Cash Flows from financing activities
Issuance of common stock
Issued note payable
Payment of dividend
10,000
5,000
(500)
Net cash provided by financing activities 14,500
Net increase in cash 15,200
Cash at beginning of period 0
Cash at end of period 15,200

If the operating activities result in a negative number, this is certainly a red flag for any established business. Have they lost the ability to make money? While the investing and financing activities can be a loss without nessicarily being harmful to the company.

If the company is not making enough from operations to cover their investing activities, this could be a red flag if it continues. Or it could be that they are simply paying for a loss with other financial activities.

It’s important to check that a company can generate sufficient cash from it’s operations to fund it’s investing activities.

Achieve the Opportunity You Really Want

Either you love what you are doing or you don’t. So where’s the opportunity to land what you really want?

Our parents raised us to think, “Where’s the opportunity?” But with the skill set that you have, you shouldn’t be shifting to hot industries that don’t interest you. Focus on what you really are. I wonder how many of those dotcoms that survived did so because the founders’ goal wasn’t only the quick buck; they had passion for the work they did. The opportunity already lies within you. The challenge, of course, is finding that ability and fostering it.

Focus on qualities that you already have

I think that the opportunity is right here. Instead of focusing on what’s next in your life, try thinking about what you have right now. What avenue of your life do people come to you for help and advice? I think that you can find a niche here.

My good friend dislikes his job and doesn’t find his situation fulfilling. (I think we can all relate.) He started to think about how he’d really prefer to spend his time creating wealth. He’s taken his skill set of electronic know-how to other people to present his ideas, and now his thoughts are fostering into a business plan. The opportunity is already within him. His specific target has shifted at least a dozen times, and he’s made some mistakes along the way. Yet each shift seems to make him happier.

Happiness is what counts. People don’t win at business because they hate what they do. People make money when they engage themselves and create a service/product that engages hearts and minds of their clients.

Shift your focus to where you want to be

If you can shift your focus from what you have to do to what you really want to do, I think you’ll find a spark within yourself. You’ll be the envy of your friends. How many of them love what they do? Doing only something that you hate is ridiculous in today’s society. No one is requiring you to be a 10th generation blacksmith. You have the opportunity to choose your career, and more importantly, the opportunity to choose your purpose.

See yourself changing… in the wrong direction?

Before I started working from 9 to 5, I recall being more enjoyable person. Have you noticed a negative transformation in yourself that accompanies your dream to liftoff? That “real world experience” hoopla is important. But how much of it?

Some experts say that a successful startup needs $10,000 to get off of the ground. So should you and I start pushing ourselves a little harder so that we can fund our ideas? You know, pay our dues?

Gaining the financial ability to walk away from our current situation seldom results in walking away. Like I said, work changes you. Money changes you even more. You’ll become so attached to the situation that you realize the sacrifices of starting your dream aren’t worth it. You don’t want to dump that security. Living on less is scary.

You have to find a balance between escaping the situation you’re in and doing what you love. Are you devoting yourself to the greatest good of all? Of yourself? Your vision of becoming something more can drive you to work harder. The drive won’t give you the vision, though. Focus on what you want to be.

You can’t achieve anything if you’re just standing still.

What’s your cut of the Retained Earnings?

The Retained Earnings Statement is the easiest accounting statement in the world to prepare and understand. It simply shows the amount of money that the company has at the end of the current time period (Usually Per Month, Quarter, or Year) after you adjust it for the income/loss and dividends payed during the period.

So the formula is simply

Retained Earnings at beginning of period
+ Net Income (as determined from your Income Statement)
– Dividends Paid
= Retained Earnings at end of period

And that’s all there is to it, a little addition and a little subtraction. If there is a net loss instead of positive gains with net income, then the number is simply subtracted. That case would look like the following.

Retained Earnings at beginning of period
– Net Loss
– Dividends Paid
= Retained Earnings at end of period

And of course, here is Aridni’s RE statment for December in the year 3000 using the (currently!) ficticious currency ‘Planet Aridni Dollars’

Aridni
Retained Earnings Statement
For the month ending December 31, 3000
(In Gazillions of Planet Aridni Dollars)
Retained Earnings, December 1 $25,000
Add: Net Income $5,000
Subtotal $30,000
Less: Dividends $3,000
Retained Earnings, Dec 31 $27,000

These statements can be useful to investors looking to find stocks with a history of high paying dividends. So if you are interested in setting up a Dividend Reinvestment Plan (commonly called a DRIP) then this should be something you might want to check out on you prospective companies before buying.

Think about keeping your customers/readers

The age-old question every blogger debates: how can I expand my readership? We focus on luring the reader with carnivals, external links, and notes on other blogs. Bring a reader to your door, then it’s on to find the next reader. Most businesses seem to chase after this theory of more customers is more money; it’s better.

But what about the readers you already have? What type of thoughts do you have on retaining them?

As Todd and I work to improve Aridni, I flip through website after website for ideas. I can recall some of the information I read and some of the sites I saw. A lot of blogs lead me to their sites, but they didn’t keep me.

Take twenty minutes to flip from website to website. Your goal isn’t a content search; you’re looking for ideas. What characteristics most draw you to a site? What are the reasons that you leave another site so quickly? Hop from site to site. Notice anything? Your subconscious will set a pattern of what it enjoys and what it doesn’t.

Do the same with your business, your resume, or even the decorative style of your living room. Look at what others do and learn from their ideas.

Will this quick research of others work?

Well think of all of the theme parks that you have ever been to. Which place stands out in your mind the most? For me, the answer is easy – Disney World. Disney is great at luring us to their magic. They’re even better at keeping the customers they already have. They believe in customer loyalty, and when you’re that loyal customer, you feel like royalty. Park guests that are staying at Disney hotels and resorts often get extended hours at the parks. Extra hours with fewer people, now that’s a real treat.

So here’s a real treat for you, too. We’re inviting you to browse through Aridni a bit! While you’re at it, tell us what you think: on Disney’s strategy, on our developing strategy. We, like Disney, love to know what more we can do to make you smile.

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