Page 264 - merged.pdf

CHAPTER 8 MASTERING YOUR MONEY

The important thing is to make sure that you don’t take on too
much debt. In the event that you are not able to service your
monthly repayments, you can be sued for bankruptcy. A safe
guide would be to make sure that your monthly installments
do not take up more than 20% of your fixed costs and that
the total debt owed is less than three times your company’s
annual net income.

Report Card 3: The Statement of Cash Flows

A ‘Statement of Cash Flows’ records all the cash that comes
into a company and all the cash that goes out. It tells you how
much cash your company actually generated and how much
it has used up over a period of time. Besides tracking your
Sales Revenue & Expenses from your Profit & Loss Statement,
It is even more important to analyze your company’s Cash
Flow Statement as it will give you a true picture of the company’s
profitability & stability.

The difference between the ‘Profit & Loss Statement’ and the
‘Statement of Cash Flow’ results because of accrual accounting.
In other words, sales revenue is recorded when the sale is
made, even though cash has not been received. At the same
time, income taxes & depreciation are recorded as an
expense, although there is no need to physically pay out the
cash immediately.

When you purchase computers or other office equipment, it
is reflected as an asset on the balance sheet and NOT as an

SECRETS OF BUILDING MULTI-MILLION DOLLAR BUSINESSES 255