Category Archives: Guest Post

Nothing’s More Fun Than Columns Of Numbers

Greg McFarlane is an advertising copywriter who lives in Las Vegas and Lahaina. He recently wrote Control Your Cash: Making Money Make Sense, a financial primer for people in their 20s and 30s who know nothing about money. Check out both the physical book and the Kindle version and feel free to contact Greg at Greg at ControlYourCash dot com.

Last month the folks at Money Under 30 graciously allowed me a few kilobytes in which to explain how income statements work, punctuated by the softest of softcore images. Some diligent readers even made it to the end of the post. For them, here’s Part II in a cross-blog trilogy. If you’re joining late, don’t worry. You should be able to jump right in and follow. I’ve included cute animal pictures to break the monotony.

The balance sheet is the second of the three major financial statements. The first one, the income statement, tells you how much money a company took in and how big a profit it generated. The balance sheet tells you the size of the company, measured by taking its assets and subtracting its liabilities. The difference is called shareholders’ equity and is as helpful a measure as any of the worth of a company.

You don’t have to be Oracle or Bristol-Myers Squibb to have a balance sheet. This works on the micro level, too. Your net worth is your own assets minus your own liabilities. It’s one reason why our mantra at Control Your Cash, repeated until people cry for some respite from hearing it, is buy assets, sell liabilities. Do that often enough and you’ll get rich in spite of yourself.

The word asset has a favorable connotation, but you can’t look only at the positives without giving the negatives comparable attention. With a balance sheet, you don’t. Hence the equal mention of liabilities. Tim Couch won 22 games as an NFL quarterback. Good for him, but he also lost 37.

If you buy up everything in sight – other companies, discounted factories, raw materials to make whatever it is your company makes, you’ll grow your assets and theoretically be halfway to increasing the size of your company. If you borrow and mortgage your future to get your hands on those assets, you’ll increase your liabilities, too. Net gain to your balance sheet, nil.

This is a killer example of how true wealth can differ radically from apparent wealth. We’re all familiar with the stereotype of the bon vivant with the ostentatious car, indulgent house and impressive array of passport stamps; the person whose corresponding 12% dealer financing, interest-only mortgage and 5-digit American Express bill are slightly less visible.

There’s nowhere to hide those last items on a balance sheet. If your company turns a profit, it’s reflected in your shareholders’ equity. If the assets are yours, as opposed to yours with some help from the credit department, ditto.

One big difference between the income statement and the balance sheet is the length of time each one refers to. Obviously, knowing income doesn’t tell you much unless you associate it with a particular period. Convention dictates that we use a year or, less frequently, a quarter.

A balance sheet doesn’t operate under the same restraints. We’re not measuring what came in and went out, we’re measuring what’s on hand as we speak. At any given picosecond, Company X is going to have a certain amount of assets it owns, and a certain amount of liabilities it owes. A minute later those numbers can change, but the concept of instantaneous shareholder’s equity will be as valid then as it was before. It makes sense to say that an income statement refers to the period January 1 – December 31, but that wouldn’t make any sense for a balance sheet. Instead we’d say that a particular balance sheet was effective on December 31.

We used Microsoft for our income statement example, so we might as well use them again for the balance sheet:

Current assets are cash (the most current asset you can have) and its equivalents. What’s an equivalent? Well, if your company makes enough money and thus has enough cash lying around, it doesn’t make sense to just stick it in a drawer somewhere. Instead, the company will spend it on certificates of deposit, maybe government bonds. It’ll earn tiny interest, but if the principal is big enough the return can buy bagels for the break room or covered parking for the executives.

Accounts Receivable is money coming in – stuff the company is owed for but hasn’t gotten yet. That’s not unusual. Most companies, if their orders are big enough, expect 30, 60, 90, maybe 120 days to get paid.

Inventories, as you might imagine, refers to goods the company has possession of but hasn’t yet sold. A company like Home Depot* has plenty of inventories, mostly as a result of its market category: a lumber warehouse without any unsold lumber on the premises couldn’t stay in business long. But Microsoft’s products are easy and fast to replicate. Inventory of this year’s Office Suite wouldn’t take up much space, thus Microsoft inventory numbers are low.

That’s it for current assets, mostly. Other assets include property and equipment, which is hopefully self-explanatory. Equity, in the case of Microsoft’s asset column, means investments in other companies’ stock. Goodwill could use a post unto itself, but it’s the difference between what another company’s assets were valued at and what Microsoft paid for them. (Microsoft would have overpaid to avoid losing out to someone else on those assets.) Intangibles are copyrights, patents etc.

Now on to liabilities, again divided among current and other. But first, a puppy and kitten.

Current means it’ll be resolved, ideally, within a year. Accounts payable is the mirror image of accounts receivable, money the company owes for services rendered or goods received and that’s due either immediately or within 30, 60, 90 or 120 days. Short-term (and later on the balance sheet, long-term) debt is money the company borrowed, while accrued compensation is just salaries and benefits owed to contracted employees. Unearned revenue refers to stuff that the company has been paid for but hasn’t yet delivered (as an independent businessman, I assure you that this is the smallest entry on my personal balance sheet.) Securities lending payable is a rare category that only Microsoft and a few other companies use: it refers to Microsoft borrowing stocks and bonds from other companies. (Tax laws treat this more favorably than they do a straight loan of cash.)

Finally, commitments and contingencies are debts the company owes and money set aside for debts the company might owe, respectively. Microsoft was the plaintiff in one of the biggest lawsuits in history in the late 90s, and who knows? There might again come a time when people become too dumb to change out the browser that comes with their operating system.

Subtract liabilities from assets, and we get shareholder’s equity. It’s the total of the company’s stock, plus its paid-in capital (which is stock sold to investors directly from the company, rather than in the stock market.) It also includes retained deficit, which is the losses the company suffered and didn’t distribute to its shareholders – a piece of minutiae you don’t need to concern yourself with.

Today’s homework assignment? Figure out your own assets and liabilities. No one reading this post will bother to, of course, but if you do you’ll know your net worth. And be in a far better position to further increase those assets while reducing the liabilities.

*We’re not going to call it The Home Depot when there are 2000 of them.

3 Tips to Save Money At the Supermarket

I get a ton of emails offering guest posts, and most of them are really horrible. Usually it’s the quality of the post, and other times the typos drive me mad. And then sometimes, I get an email with a post like this. How could I turn this down? It has that touch of personal that I just love. Enjoy!

I don’t know about anyone else, but supermarket shopping puts a bigger hole in my monthly budget than any of the other purchases I have to make in a month. I couldn’t figure out why. I only have a small family consisting of a husband, 2 kids and myself. None of us are big eaters and we’re not above having hot dogs and fries, home cooked mind you once in awhile. So why am I blowing my food budget week in and week out?

After some really careful thought and soul searching I came up with some really good answers, and some innovative ways to overcome the problems. I thought maybe some of you may be in the same circumstance and might want to save a few bucks.

Don’t go grocery shopping after work
Big mistake! My usual pattern was to take my grocery shopping list to the supermarket on Thursday nights on my way home for work. It’s the day I get paid so it makes sense to get this chore out of the way. Here is what I discovered:

First of all I am really tired. It’s towards the end of a grueling work week. So my mind set is to grab foods that basically take no, or at least very little preparation. There is no question that these kinds of foods are more expensive because of the convenience they offer.

The next issue with shopping at this time of night is I am starved. We all know that when we shop for food when we are hungry, we end up buying a lot more than we need because everything looks good.

Finally, the third issue is I just want to get out of the store, go home, get a quick dinner together and get my feet up! So do I take the time to bargain shop? Nope! Whatever is closest to the end of the aisle is good enough for me. It just means one less aisle to walk down. You can imagine how much money alone I saved when I put this practice to an end.

Don’t take the kids with you
Quite often I would get my youngsters to meet me at the grocery store to help load the shopping into the car. Needless to say with three pairs of hands filling the shopping cart it didn’t take long for the bill to add up.

Delegate your shopping authority
I found that the kids were beginning to get a bit picky at some of the food choices I was making. So I made them a deal. Both my kids are teens, so now is the time for a lesson in life. I gave them the choice to each plan a meal for a night. They were given a certain amount of money to do this with. The bonus was whatever was left over from their shopping they got to keep. It had to be a healthy wholesome meal however. I had to say I was quite impressed with the money they managed to save for themselves. Plus, it put the complaining to an end as well now they had a chance to see how expensive food can be.

My husband’s delegated duty was to shop for the sale items each week. This worked out really well. He drives right by the supermarket on his way home from work. He would just pop in and pick up the specials that we were interested in and nothing else. Not only did we get a good selection of what was on sale, but we saved a good amount of money by taking advantage of the daily and weekly specials.

Just by changing these few things and putting some innovative ideas in place I managed to not only stay within my grocery budget, I cut it down by a third.

This was a guest post written by Lior who works for company that sells nursing tops and also advises to a task management startup.

Motivational Story: From Dog Walking to Ivy League

Remember “Sally” from a few months ago? She was rejected from a job because she asked her lawyer father for legal advice. How dare she! Anyway, she’s back with an amazing story about how hustling can get you pretty damn far. In her own words…

Since my first day of Kindergarten, my parents, teachers, and counselors all emphasized that if I tried hard enough, I could achieve anything. Hard work and determination would land me at the front doorstep of my goals.

My mother always told me to eat a good breakfast, and I would succeed. I listened, ate up, and succeeded my way through graduation. My parents took pictures of me smiling on the front steps of the library, and we all thought I had really done it.

So how did I go from graduating from the Honors program at the University of Maryland with a 4.0 GPA, Phi Beta Kappa to scooping dog poop, waiting tables, and house sitting?

After graduating last year into one of the toughest economies, I was sent with my newly printed resume to pursue hundreds of coveted entry-level positions in disinterested offices. They had bigger fish to fry, and bigger, more experienced fish in the sea swimming by me with their tentacles out. As I pitched my talents to interviewers (if I was lucky enough to get that far) and explained why anthropology was such a great choice in major, I saw in their eyes what every one of them was thinking: “That’s cute.”

After a couple of months of wasting away my funds on an apartment I could not afford and work clothes I certainly did not need, I put the box of tissues aside, squeezed my stacks of cover letters into a large storage unit, and took to the streets. I put on my walking shoes and begged for jobs. You need a waitress? Well, here’s my resume. I’m an anthropology major.

I house-sat, waitress-ed, office managed, and found my not-so-true calling in dog walking. My sixteen hour days included three changes of wardrobe, bad tips, and all the joys that come with dog walking. I never imagined having to clean up after dogs after getting a college degree, but it paid enough to keep my checking account positive. I was still sending out resumes somewhere in between my odd jobs. In a bad economy, people still need to eat, their dogs still need to go to the bathroom, and I needed to keep moving.

Finally, in April, I applied and was accepted to the University of Pennsylvania’s Masters in Social Work program. I don’t see it so much as running from the job market as much as I am using the knowledge I gained while being ostracized from it. I was forced to finally think about where I really wanted to send my resume, instead of just what looked good. I learned that success was measured by more than good grades, and I figured out what personal success really meant to me. Take that recession.

There are 359 hits when I search my Gmail account for sent resumes over the past year. Granted, many of these are What-Am-I-Doing-Wrong-Emails, but they are still a testament to the amount of personal manpower required for this task. I cringe at the thought of how many of these embarrassing emails were actually read.

At the end of it all, I think mostly to another poster in an 8th grade science room of a cartoon frog in a pelican’s mouth. The pelican is nearly swallowing the frog whole, but that little frog keeps its hands wrapped tightly around the pelican’s throat in a death choke, with a quote under it reading, “Never Ever Give Up.” I always related to this more than the Little Engine That Could, although the message is clear from both. Stick to the golden plan even when things look down. And in the meantime, pass the Cheerios.