How to calculate your profit ≠ Cash Flow 📍 | Gary Jain 🚀 posted on the topic | LinkedIn (2024)

Cash flow vs Profit

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An owner of a business who truly doesn't understand the difference between cash flow and profit will definitely put the business into jeopardy. Every one in five small medium companies in the United Kingdom are struggling when it comes to proper cash flow.Also, a lot of companies in the United Kingdom are into "factoring" to meet short term liquidity needs.Accounting is the language of business, because it serves to communicate about a company's financial performance and position.

“Most small businesses are unsellable.” Do you believe this to be true? I often hear people say that some large percentage of small businesses are unsellable and it seems that the reasons cited often boil down to “blaming” the business owner for not doing the work necessary to prepare the business to be sellable. While I do think the business owner should take responsibility for whether the business is sellable or not, I have been thinking more about whether the lack of preparation is actually the problem in most cases. I have a theory. I think for the 90% of small businesses that are valued at less than $1 million the “standard way” to sell a business just doesn’t work. It might not be because the business isn’t prepared. I think it is the fees. The “standard way” to sell a $1 million small business involves the following expenses: - Hire a business broker to list the business - 10% of sales price - $100,000- Business appraisal / valuation - $10,000- Tax accountant for the seller - $10,000- Legal Fees for the seller - $30,000Total Seller Fees = $150,000The buyer should expect the following expenses: - Legal Fees - $10,000- Tax Accountant - $10,000- Quality of Earnings Report - $20,000- SBA Loan / Bank Fees - $10,000Total Buyer Fees = $50,000Certainly, some of these expenses could be optional, but you can see a path to paying over $200,000 in fees on a $1 million small business acquisition. I think that once a seller realizes they could pay 15% in fees, maybe hold back a 10% seller note, and pay 20% capital gains tax on the sale of the business, they realize that it just doesn’t make sense to sell the business with this approach. It isn’t that the business is unsellable. It is that the seller has little incentive to sell in many cases. They may be better off just running the profitable business for another couple years and then shutting it down. I think there might be some more creative ways to buy a small business that can drastically reduce fees, but that is all theory right now. I will keep sharing what I learn in my search to buy a small business, hope you will follow along!

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Just one thing would have saved Oja from Closure... 😭😭😭No, I don't have a crystal ball... And they say hindsight is always 20/20And no, I don't know their businessAnd yet I do know businessAnd the one thing that would have saved them would have beenA CASHFLOW APPROACH to their business... And if you're wondering how I know this... (smart question) It's because it would save ANY business from involuntarily going out of business Because 100% of businesses that go out of business, do so because they run out of cash. That's the stats bit. But the bigger, more important piece of the puzzle is what a Cashflow approach to business would have meant for them operationally, and all it would have given them:1. Runway A Cashflow focus ensures you are clear on your cash runway which gives you time to deal with challenges, pivot as needed and live to fight another day... You know what's happening with your moneyAnd awareness gives you choices... 2. RelationshipsA Cashflow approach helps you remember that your people come first. ✅Your customers give you the cash you want✅Your staff help to fulfil on the promises you make, and keeps that cash with you✅Your partners support your vision and dreams... And the right ones accelerate your cashAll 3 are needed to get that cash in the bank. A Cashflow approach to business will see you treating them well, communicating effectively and helping them to help you. 3. Responsibility (aka Response- ability) A Cashflow approach keeps the money front and centre and so keeps you focused on how you are able to respond to market, environment and customer changes. But most importantly... It would see you continuously asking the Cashflow Approach QuestionHOW CAN I SERVE AND SUPPORT MY CUSTOMERS? Every dayEnsuring that you are focused on sales and serviceAnd not relying on funding to keep afloat. Your eye would NEVER come off that ball. A Cashflow approach to businessLet's the market determine your futureAnd sees you adapting and winning with their changing needs.. Sees your priotising the skills, the time and the focus needed to put cash in the bank, and create wins for everyone.And that's what's so upsetting about this story for me...Because no one wins with yet another business closingEspecially not a rare Black Female Led, VC funded business...It's heartbreakingAnd yet we cannot get away from the truth of business...No Cashflow, No Business is ALWAYS true, no matter who backs you. It's the golden rule in the game of businessAnd is the only we have to master if we want to stay in it & win it.#callasuccess #whatyinkasaid #cashflow #business ____________________🌟 Hi, I'm Yinka, and I help women to create wealth in and through their businesses, by focusing on cashflow, Mindset and business thinkingLike this post? Well you can👩🏾🤝👩Slide into my DMs and ask me about strategy, cashflow, business or a winning mindset📅 26 Aug 2023

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Small business valuation 101, for all of those folks who are new to the search fund world. 👇When looking at buying a small business, figuring out how much it's worth, and how much you should pay, involves some serious math and a good understanding of the business.First off, there's something called EBITDA. That stands for earnings before interest, taxes, depreciation, and amortization. This is a key number because it gives you a pretty good snapshot of the company’s profit once you strip away all the extra stuff like taxes and paying back loans. It's like looking at how much money the business makes from just doing what it does best. Now, this number isn't perfect. This is where management adjustments come in. These are tweaks you make to the EBITDA to reflect the true profit. For instance, if the current owner pays themselves a massive salary that wouldn't be normal under new ownership, you'd adjust the EBITDA to account for what's a more typical salary expense. Or maybe the business paid for a one-off big project last year. You'd adjust for that too since it's not a regular expense.After adjusting, you get a clearer view of what the company really earns. This adjusted EBITDA is super important. Buyers and sellers look at this number, compare it to similar businesses, and decide how much the company's worth. The final price tag for buying the business often involves multiplying this adjusted EBITDA by a certain number, which depends on how businesses like this are valued in the market. (Why multiply it by a certain number? That, unfortunately, will need to be the subject of another post...)But wait, there's more! How you manage the company and your plans for its future can also impact the price. If you've got some smart ideas to cut costs or grow sales, that could make the business worth more.Valuation is part financial detective work, part strategic planning. And getting it right is key to paying a fair price and setting up for success post-purchase.

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Happy Friday Assets Vs. EquityAssets are the physical and monetary properties that belong to a business, such as inventory, cash, and receivables. Equity is the business owners’ share in those assets. The difference between the total assets and total equity of a business is always equal to its total liabilities.Assets All resources that are available to a business in the form of cash, receivables, inventory, buildings, and any other properties that can be used in the future to derive economic benefits for the business are known as assets. Assets can be physical possessions like inventory and buildings, or they can be monetary resources such as cash and accounts receivables.Equity Equity is the amount of assets left in the business for its owners after deducting all the liabilities such as bank loans and trade payables.So even though the owners’ equity depends directly on the worth of assets in a business, equity and assets are not the same things.You can think of equity as what the owners take home if the business is shut down today after paying any amounts owed to creditorsbecause, by law, they happen to have the first right to payment in such an event.For example, if a business has total assets worth $50,000 and total liabilities of $20,000, we can say that the owner’s equity in that business is equal to $30,000 ($50,000 minus $20,000). The amount of equity can increase by the owners’ contribution of capital to the business (e.g., subscription of company shares) and by the re-investment of gains and profits.Likewise, any distribution of profits to the owners (e.g., dividends) decreases the owners’ equity in a business, as do any losses. Because the creditors get a pre-determined amount back on their loan to the business irrespective of its profitability, any upside or downside earned on the business assets directly affects the amount of owners equity.Changes in the owners’ equity often go hand in hand with changes in assets.* Capital contribution by business partners increases the cash at bank (asset) and owners’ capital (equity).* Profits earned by the business increase assets such as cash, receivables, and inventory and cause an equal increase in retained earnings (equity).* Dividends to owners decrease the cash at bank account (asset) and retained earnings (equity).It is important to remember equity will not always change if the assets increase or decrease.That’s true, for example, when the assets of a business increase because it has borrowed money. In this case, the increase in business assets will be matched by an equal increase in business liabilities with no effect whatsoever on the owners’ equity.#assets #equity #militarytransition #corporatefinance #financeandaccounting #managers #businessanalysis

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For most business owners, it costs more to run a business these days. If you're looking for ways to keep your business thriving and away from having to file for bankruptcy, these tips can help prepare your business for whatever lies ahead. https://hubs.li/Q021dtxB0 #calgarysmallbusiness #smallbusinessaccountant #yycsmallbusiness #truenorthaccounting #smallbusiness

"Jason, I want to buy a business - but how do I get started?"Really, getting started can be broken down into 3 simple steps:1) Define what your "buy box" is. Said differently, we can't expect to catch fish if we don't know what we're fishing for. Telling a broker, "I want a cash flowing business with management in place" wont get you very far, at all. They hear this all day long. To stand out, to convince sellers to sell to you versus somebody else, and to ultimately ensure you buy the *right* business, defining a clear *buy box* is essential. This could be a specific industry, a type of business, and/or a geography. The more clear you are on what you're looking for, in my experience, the better you'll do - in all aspects of buying a business. 2) Create a deal team - and decide whether to compensate with cash or equity. This is where we talk about an accountant with auditing and financial analysis skills, a lawyer with M&A legal skills, and an industry expert who can help you analyze businesses you consider acquiring that fall within your buy box. A big consideration here is whether you're going to pay these folks via cash vs. equity. Both have their pro's and con's. Alot of this comes down to whether or not you are "cash rich" or "cash poor." If you lack cash like I did when I got started, then your only option is to compensate with equity.3) Juggle the 3 core dealmaking essentials: debt, equity & deal flow. This is the fun part. For most deals, the debt will be SBA 7a finance. This part may also include seller finance. The equity can be your cash, an investors cash, and/or a seller finance note on hold. (I can write about this in another email). And then - "deal flow." What's deal flow? Simple. It's the company itself that's for sale! All deals, by definition, need a seller!Depending on where you are, these three steps may sound really simple, or super exhausting. If you're in the first camp - great! Go get 'em! And, if you're in the second camp, but desperately want the cash flow, freedom, and benefits that come with business ownership, then I'm confident I can help you.To consider working together, click this link: https://lnkd.in/enfJp2QWTo your success, Jason

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“If I own 100% of the business, why does it matter” ❌ It's not that simple.I was once told this by a founder when we were talking about the cash in the business account. Whilst technically true; legally they were and are still two separate entities and each is subject to different laws.This notion is exactly why it’s fundamental for solopreneurs / startup founders to keep the business and their personal finances separate. After unpicking so much, here are 3 very simple tips that will alleviate 80% of the headaches 🤯1. 🏦 Set up a business bank account and use that for all legitimate business related expenditure. If you make business purchases on your personal card, reimburse as an expense of the business. If you invest in the business, record this as a directors loan. Your future self will thank you!2. ®️ Register yourself and your company for all related tax disclosures. Personal self assessment (SA100); and VAT and PAYE are the main ones for the company. VAT means that the business can claim 20% of business expenses back - on laptops etc, and PAYE at source makes planning your business and private finances so much easier; and3. 📑 sign business contracts in your business name. Do what you can to avoid giving personal guarantees. A limited company is just that. It’s liabilities are limited to the company. This doesn’t mean be unscrupulous. Far from it, but protect yourself so everything isn’t at stake if the business makes a mistake.You and your business are two separate entities. Keep things separate. Not just for the financials. But for your personal well-being too!!

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When starting a #smallbusiness, it's important to set realistic expectations in your first year, as this is typically the most challenging time, says Margo Perkins, Founder of Margo Paige. Read "I’m a Successful Small Business Owner: How To Survive Your First Year": https://buff.ly/3JBZPaI#cashflow #invoicefinance #factoring #smallbusiness

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