Chapter 9: Cash Flow and Taxes

In my previous post, I spoke about a problem that many small business owners have. One of those problems was that many small business owners do not understand the value of a cash flow statement. The cash flow statement, in my opinion, is the most important statement. Given they are all necessary to keep a business running, the cash flow statement is what should be used day-to-day. The cash flow statement shows the amount of cash coming in, relative to the amount of cash going out. Your income statement can show a high net profit, but, until the money is actually paid to your business, that profit is not worth anything. There are situations where companies have had good net profits, but had to shut down because they had a horrible cash flow problem. That is why it is important to monitor the flow of cash in and out of your business. Make sure you maintain a level of cash that is enough for you to pay any bills or taxes that come due.

Chapter 8: Using Financial Statements to Guide a Business

This chapter, to me, covers what I believe is the root of many small business failures. Like I stated before in my last post, there are many ideas that are good ideas that are simply not feasible. In this case, we will say that an idea is feasible and the business has already started, things look promising. If the owner of this business does not know how to make or understand an income statement, cash flow statement, or balance sheet, this "great idea" is doomed to fail.----Of course, after typing that last statement, I rememberd a tool that many small business now use to keep track of all three of these statements...Quickbooks. Quickbooks has really taken the guess work out of using these statements. The software is so easy to use, and it can really meet all of your regular accounting needs. Now, with that being said, I know from personal experience that there are still many small business owners to don't keep accurate records. Since the creation of Quickbooks and the other slew of programs that do the same thing, there is really no excuse for a "mom-n-pop" business to fail because they had cash flow problems that could have been addressed had they known the severity of.

Chapter 7: Understanding and Managing Start-up, Variable, and Fixed Costs

Chapter 7 covers one of the most important topics in starting a new and running an existing business: Costs. There are people that come up with great ideas every day. Rather it be an invention, service, or something completely new, there are many times when a new idea is simply not feasible. If you come up with an idea that is going to incur astronomical costs, you need to ask yourself: "Will investors see the value in my idea and be willing to take on the risk of a new venture?" If you don't foresee investors agreeing in your vision, then the idea is either a bad idea that you think is great, or the idea is ahead of its time and maybe, at some point in the future, your idea will be more feasible.

I know this is a common example of small business owners and the costs they face, but Anytime Fitness is a perfect example to look at. If you think about the initial investment of an anytime fitness, there are some steep costs associated with starting the franchise. First, you have franchise fees. Some franchisers are more reasonable then others; Anytime happens to be one of those franchises. Next, you have to lease, buy, or rent a space to house your gym. In the case of Anytime Fitness in Germantown, the gym is located in a prime area. There are many high end salons and stores around the gym, so, on average, the lease is more expensive then most gyms of comparable size. Finally, you have equipment financing. The equipment is typically bought as a package deal that is arranged through partnerships of Anytime Fitness corporate. The equipment packages vary depending on the size of the store, but, on average, you can look to spend around $200,000 easily on a good equipment package. Now, take all of those costs and take into the account that when you start a gym, you essentially have ZERO members which equals ZERO income. Every gym has a break even point in terms of the number of members needed to cover the costs for the month.