June 4, 2024 • 28 mins
Have you ever felt overwhelmed by financial statements and unsure what they tell you about your business? Join us as we strip away the complexities of financial literacy with Strategies' Director of Coaching and Educator, Daryl Jenkins. In this episode, we break down three critical financial documents every beauty business owner needs to be familiar with into simple, digestible concepts. By likening these financial documents to chapters in a book, you'll learn how each one tells a vital part of your business's story. You'll learn how these documents help you make smarter business decisions so you can start writing your business' next profitable chapter.
Conversation highlights:
0:00 Financial literacy is simpler than you think
4:03 Your business is made up of chapters… What is the full story?
5:40 Profit is not cash, so what is it?
7:33 Daryl’s #1 tip for profit and loss statements
12:05 Is your company in good health? Your balance sheet can tell you
16:25 The third and most neglected chapter: the statement of cash flows
20:00 Daryl’s recommendations to kickstart your financial understanding
21:28 Adding the fourth chapter with Strategies’ key ingredient
23:51 What now? The first steps to unlock your financial literacy
Watch the video version of this episode: https://youtu.be/rxak_MHej0I
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the Beauty Business Strategies Podcast.
I am joined today with my goodfriend, compatriot, educator
coach.
I don't know what else to say,but all kind of good things, mr
Daryl Jenkins.
How are you, daryl?
Speaker 2 (00:15):
I am better than good .
Speaker 1 (00:16):
How about you, michael?
I'm good.
I'm good, so I'm excited today,on today's podcast, to talk
about financial literacy.
Sounds like a stirring topic,doesn't it?
Speaker 2 (00:29):
It does have that tinge to it, but it's actually
quite fascinating once you getinto it.
Speaker 1 (00:34):
It is, it is.
So the reason we want to talkabout this with everyone is
simply, this is as much as wecan kind of have a little bit of
fun with the topic of financialliteracy and whatnot.
It's just really important.
I mean, simply put, it's justthat important.
And it's important because itimpacts every business.
(00:55):
And so I think maybe the bestplace to start, daryl, in our
conversation is just to kind ofsay when you think about
financial literacy, what's?
That really, what do you thinkthe definition of that is to you
?
Speaker 2 (01:08):
I think it's just understanding the numbers,
understanding your business.
What is it telling you?
You know, in simplest terms,financial literacy is just
knowing how my business is doing, is it healthy, is it
performing, you know, and mostimportantly, is doing, is it
healthy, is it performing?
And, most importantly, do Ihave cash?
Those things?
I think it just starts out withthose basic questions.
(01:30):
And what are the answers tothem?
Speaker 1 (01:38):
Right, and I was going to say, I think that the
important thing is that itdoesn't get any more complicated
than that.
It doesn't get any morecomplicated.
It was actually you know, forthose listening and watching it
wasn't but a couple of weeks agothat we did a class on exactly
this topic and I think the onething to me that comes out of
the light bulbs about that classthat always go off is exactly
(02:00):
what you just said therealization around, in a sense,
how simple it really is, eventhough we all come in to this
idea of financial literacy,seems complicated Because really
, what we're talking about iswhen we're talking about, as
Daryl just said in really clearterms.
You're talking about this ideaof understanding my balance
(02:23):
sheet, understanding my profitand loss statement,
understanding another statementcalled the statement of cash
flows.
So we talk about financialliteracy, it's about
understanding these accountingdocuments, and I think that's
where we start to put up just aton of barriers.
Speaker 2 (02:40):
Yeah, and honestly, I think there are people in the
world that want it to appearscary and complicated for their
benefit.
And it's not scary andcomplicated.
And so once we discover that wecan learn that language if you
(03:00):
will, that the ideas are prettysimple, then it starts falling
into place.
But somewhere along the line Ifeel like someone told us that
we weren't supposed tounderstand it Right, that you
know it's scary and you had tohave some degree or level of
knowledge.
And you know, for all intentsand purposes it's very basic
(03:26):
math.
It's not that complicated, it'sjust some people choose to make
it such.
Speaker 1 (03:32):
Right, you're right.
It just becomes a matter ofonce you understand the basic
terminology.
The rest of it goes away, andwe try to simplify that
terminology.
As a matter of fact, if in thefirst couple of minutes that
we've already been talking, inDaryl's introduction, it's
almost like he's very simpleterms, which is exactly how we
always phrase things to alreadysimplify the complexity of
(03:58):
things.
And so you know, whenever westart talking about this, if we
you this, we want to share withyou some key pieces of
information that can help yourfinancial literacy, and so I
think one of those key things islet's get a couple easy
principles in place for you.
The first is this we talk aboutthe fact that there are three
(04:21):
financial statements that youneed to understand.
Let's put it in perspective.
The example I always love touse is the idea of for those of
you that are readers and lovereading books think about it
this way these three financialstatements.
They are each an individualchapter in the story, the
(04:44):
complete story of your business,and so understanding what each
chapter says allows you to seethe complete story.
Because if you only ever readone chapter out of a book and,
daryl, I know you're a bigreader.
But if you only ever read oneor two chapters out of a book,
you'd have some idea of who thecharacter was, you'd have some
idea of what the plot was andwhat was happening around, but
(05:08):
you wouldn't have the fullpicture.
And so that's why many of usonly ever read one chapter or
maybe two out of our threechapter book, and the one
chapter we might read isgenerally around the profit and
loss statement, because it's theone that we are most familiar
with and the one that we thinkthat we most easily understand,
(05:32):
and so I love your idea aboutkeeping things simple in
principle.
So if you were to say just kindof simplify, simplify profit
and loss for me, darrell, prof.
Speaker 2 (05:42):
Profit loss is simply how much money came in and how
much of it went out.
What did you spend it on, quitefrankly, and did you have
anything left over?
Speaker 1 (05:54):
Right, and with that we like to kind of tie it into.
If we're looking at andthinking about it, as it tells a
part of your story, we use avery simple way to relate to
that Profit and loss tells youabout the performance of your
business.
That's the story that a profitand loss tells us.
(06:16):
So it tells us aboutperformance.
Now, we don't have time to getinto it because this is a
limited amount of time podcast,but what I do want to say is it
also tells you about profit andloss at the bottom line.
We look at it and we say, hey,listen, this tells us about our
profit, but, darrell, what's thekey thing that we have to,
unfortunately, what's the bubblewe have to burst at every class
(06:38):
?
Speaker 2 (06:39):
Oh, you're going to, let me be the bad guy, I thought
I was the guest here.
Speaker 1 (06:42):
No, you're going to be the bad guy, Well as it turns
out, profit is not cash.
Exactly that's a painful pillto swallow.
It's a painful pill to swallow,but while profit is not cash,
it does have the ability to becash, but this is why we need to
(07:04):
see every chapter of our story.
Speaker 2 (07:10):
But I'll also interject.
You know what is profit?
Profit's just simply.
It's a bit abstract, but itlets us know, it tells us if
value was increased or decreasedwithin the business.
And that's what we're lookingto do.
We're looking to increase value, right, and that relates right
back to the word performanceRight.
Speaker 1 (07:31):
That's exactly it.
So when we look at this, here'sthe one cool thing about the
profit and loss statement is,everyone out there loves metrics
.
You all love benchmarks, right,and so we love to use
benchmarks in our industry as ameasurement of how we are doing,
and what I would tell you isthis is where some of your most
(07:55):
critical benchmarks live.
This is, you know, out of allthree of the chapters of your
story, again a balance sheetbeing one chapter, a profit and
loss that we're talking aboutnow being another.
And then we'll also talk aboutthe statement of your story,
again a balance sheet being onechapter, a profit and loss that
we're talking about now beinganother.
And then we'll also talk aboutthe statement of cash flows as
the third chapter.
This chapter does tell us allabout those key benchmarks that
(08:17):
we so love to measure to see ifwe are in line and creating a
healthy company.
So let's touch on maybe one ortwo critical benchmarks that
might get measured as we look ata profit and loss.
It'd be important for all of usto be dialed into.
Darrell, what would be one toyou that just jumps out?
Speaker 2 (08:38):
Well, I want to step back one step and say, in order
to get those benchmarks, we needto have on that profit and loss
what's known as a percentage ofincome column, and I point that
out only because we look at somany that do not.
And so if your profit or lossstatement is going to have that
(09:01):
percentage of income column onit and so that you can compare
it to your benchmarks, and Ibelieve you will find that once
you do that, once you add thatcolumn, that's when it starts
unlocking and demystifying theprofit and loss statement,
because when you're looking atit just numbers, it's like wow,
(09:25):
I don't understand this.
However, if we've got thispercentage of income column, now
we're beginning the process ofunderstanding how our business
is performing and touching onthose benchmarks.
And I believe I have forgottenthe question.
But the question I believe waswhat are some important
benchmarks you want to look at?
(09:45):
Probably, in our industry, themost important is going to be
service payroll percentage.
You know, is our servicepayroll as a percentage of our
total income within thebenchmarks?
Most people?
Well, probably it's second onlyto profit.
We want to know that profit.
Speaker 1 (10:05):
Right.
Exactly, the key benchmarksthat you want to be dialed into
just in those two areas is we'retalking about service payroll.
We would recommend a 30 to 35percent as a comparison of the
expense in relation to yourtotal sales.
(10:25):
So that's why you want thatpercentage of income.
Is that measurement of how muchwas this?
What percent of service payrollas an expense was in relation
to your total sales or totalincome?
And you're right, that'sexactly one super critical
number 30 to 35%.
That's the range, a benchmarkthat we want to be in.
(10:48):
The other one you mentionedbeing net profit is the fact
that you want to have at leastsomething net profit Cause.
This is the why we all, this iswhy the profit loss is the most
popular, because you want tosee how much profit happened in
our company without the percentof income.
It is a little bit like I don'tknow if this is good or bad.
Speaker 2 (11:07):
Yeah, exactly.
Speaker 1 (11:08):
Taking a guess, just taking a guess at it.
But you know, at the minimum,at the minimum, you want to have
at least 10%, but really whatwe would strive for is 15 to 20%
, or again even higher.
But what?
And the reason being this isand this is why this is so
(11:28):
important to read this chapterof your story, because if you
don't, you know every littleexpense in the company, every
little pothole in that road,you're going to feel.
But when you start to build ahealthy profit in your company
and you can look at this and say, hey, I'm 18 percent net profit
, 20 percent net profit.
Now, all of a sudden, thoselittle potholes in the road, you
(11:52):
barely feel it.
You know they're there, but youbarely feel it.
It allows you to travel at amuch smoother, much faster pace
as a company.
So that's powerful.
So we just skimmed the surface.
But we've got two otherchapters to talk to you about.
You know one of the other mostimportant chapters where they
all have their importance.
But one of the most importantthings, too, is the chapter that
(12:15):
tells you about the health ofyour company, and that's when we
refer to the balance sheet.
The balance sheet is soimportant because it reflects
the health of the company.
If we had to pick out, like,one key thing to you, daryl, or
one or two key things about thebalance sheet, just to kind of
set the tone out there, whatcomes to your mind.
Speaker 2 (12:37):
I'm glad you said two , because there really are two.
The two main things I want toknow is you know what does the
company own?
You know what does it havespecifically in cash, but also I
want to know about theliabilities.
Who has claim on the thingsthat I own, in some cases debt?
(12:58):
So those are the two big thingsI'm looking for and I want to
know about on my balance sheet,right?
Speaker 1 (13:05):
And that's exactly what the balance sheet shares
with us.
So when you're listening andyou're thinking about, I have to
start looking at this, I haveto start to read this chapter of
my business.
It's exactly what it's tellingyou what do I own and what do I
owe, who has a claim on thoseassets?
And then finally, in the end,then that gives us we can also
(13:27):
look at our equity, or the valuethat we're building in the
company, and that is criticallyimportant for anyone.
Anyone that owns a businesswants to build stronger equity,
because at some point down theroad you're going to say, hey,
listen, I'm going to sell thisbusiness because that's the goal
of owning a business Someday topass it along to someone else.
(13:50):
You get the benefit of that andthey get the benefit of a
healthy company to keep growingtheir next chapter of their
lives in that way.
So this is why, again, balancesheet of critical, critical
importance to you.
Any other thoughts balancesheet wise that you think would
be just kind of important toshare at the moment?
(14:13):
Just something simple.
Or let me ask the question thisway what do you find the
biggest hurdle is, or challengemight be, for people that might
first be looking at a balancesheet?
Speaker 2 (14:27):
Well, I think the first hurdle would be like
understanding the terminology.
Like I just said, liabilities.
You know some folks might notquite understand at that moment
what that means Basically it's,you know, in a lot of cases your
debt Debt's included in that.
It's not the only thing, butwhat you really want to be
(14:47):
mindful of in your company isyou know how much debt do you
have compared to how much stuffdo you own.
You know you don't want to owemore than you own.
Right and liabilities, assetsequity tells you those things
and that's what.
(15:08):
That's what makes one of themajor reasons it makes the
balance sheet so important isknowing the health of the
company.
Speaker 1 (15:15):
Right, and speaking of health, before we move into
the last chapter that we want totalk about, speaking of health,
the balance sheet probably isthe most critical of the three.
From simply this standpoint,it's every leader's job to build
a healthier balance sheet.
Absolutely, because a healthybalance sheet benefits everybody
(15:40):
.
That's a part of the company.
This isn't just a directbenefit to one or two people.
It benefits everyone.
That's a part of that company,because healthy companies take
care of their team members well.
They are able to do really coolthings in their company.
And when I say really coolthings, that might mean that
healthy companies are able toexpand.
(16:01):
Healthy companies are able tooffer benefits.
Healthy companies are able tooffer a stability and growth and
increases in pay and all typeof things.
The dreams that you have, thosedreams are built on a healthy
company.
Healthy companies are able tomove fast and achieve really
(16:24):
cool things.
But we're talking about movingfast and we're talking about
achieving something great.
Well, we got to kind of thinkabout it this way and this
brings in the third chapter ofthis story of your business, and
that is we have to know.
When I think move fast, Iautomatically think about cars.
(16:44):
I'm big into cars.
I love cars.
It's kind of one of those hobbytype of things that I've always
been intrigued by, always love.
So I think about moving fast, Ithink about a car.
And the only way to move fastin a car is you gotta have a
tank full of gas to be able topower that car.
Or, if you happen to be a fanof electric and hybrid vehicles
(17:05):
and things nowadays, you gottahave a full charge.
Either way, you gotta have afull tank of something.
Whether it's a full tank ofelectric or gas, you gotta have
a tank full.
And that's where the statementof cash flows, the one chapter
no one ever reads.
The most neglected, the mostneglected.
Speaker 2 (17:23):
It's actually the chapter that tells you whodunit,
right, yeah right.
Speaker 1 (17:28):
That's the right way to say it If it's a murder
mystery, it's a murder mystery.
Speaker 2 (17:32):
Who did it?
I don't know.
I'm not reading that chapter.
I'm not going to do that.
Speaker 1 (17:36):
But you got to know this chapter because it is about
the fuel of the business.
It does give you that whodunit.
In other words, this is aboutyour cash, because cash is the
fuel of every business.
Now you know why do many of usnot read this chapter?
Speaker 2 (17:56):
Because we don't understand it.
Speaking from personalexperience, it looked like
gobbledygook, right.
But again, once, and it's verysimple, that's the nice thing,
it is a simple unlocking.
Once you have that simpleunlocking of how to read it,
it's like you can't unread it,right?
(18:17):
So, yeah, that's probably thereason it's the most neglected
is because we're not quite surehow to start reading that
chapter, right?
Speaker 1 (18:28):
And the one.
I will tell you this without adoubt.
I will tell you this without adoubt, and Daryl and I have done
this financial literacy classnumerous times, numerous times
and every single time.
This is the statement that,again, is most misunderstood,
(18:49):
most never look at, becauseagain it does feel like very
confusing, but everyone comesaway going.
This is my favorite statement,because we all want to know
what's happening with the cashin my company, exactly.
You know, the profit lossdoesn't tell you about cash.
That tells you about profit.
This tells you did we take thatprofit and actually turn it
(19:11):
into cash and, if so, what arethe actions and behaviors that
did that?
Why did it turn into cash orwhy didn't it turn into cash?
And then this directlyinfluences the health of your
company, because a healthycompany has more assets, more
cash, more things that you own.
Then it does things that youowe, and so cash is the best
(19:37):
asset that you can have.
And so this is the really Isaid the health is the most
important.
But all these statements havetheir critical point.
Oh, absolutely All thesestatements have it.
So what would be like if we'retalking about because again it
is a little bit confusing, we'renot gonna get into the workings
of it on this podcast.
Too much to talk about when itcomes to the actual workings of
(19:58):
it.
But if you were to run this,what are simple things that
every one of us could do rightnow?
If we ran that report, whatwould be a couple of simple
things that you would say, hey,listen, start looking at.
Speaker 2 (20:11):
Well, it's simple and it's a little bit of a broad
answer, but I want to know howthe cash is moving out, what
cash, where's the cash comingfrom or where is it leaving to?
And what I mean by that is, youknow, because the statement
does tell you about the flow ofcash in your company.
If a lot of that cash is comingin from bank loans or you know
(20:37):
credit card drafts, things likethat you need to know that.
You need to know that becauseit's going to affect your
balance sheet.
Also, too, if an abundance ofcash is coming in, you want to
know how it came in, not onlybecause maybe it came through a
financial loan, maybe it's giftcards, right, you know?
(20:57):
So if we sold a bunch of giftcards and this massive cash came
in, we need to know where itcame from so we know what to do
with it.
Right, you know?
Because when it shows up in ourbank accounts, we'll say, oh,
this is gift card money.
We can't spend that just yet.
We've got to wait for it to beredeemed instead of going.
(21:19):
Woohoo, I got $10,000 in theaccount.
Drinks are on me.
So I think those are someimportant things to consider.
Speaker 1 (21:27):
Absolutely these three statements.
We talked about your balancesheet telling us the health of
our company, the profit and loss, telling us about the
performance of our company.
Statement of cash flows,telling us about the fuel, the
cash of our company, what'shappening with that.
All of these things I wanteveryone to realize is these are
all outcomes.
(21:48):
These are all what's happenedin your business, not what can
happen in your company.
And so there is one key thingjust to kind of give start
planning the seeds is one keything that all of you can do is
start working with a cashflowplan, and that is you're making
(22:10):
good projections about thegrowth of your business.
This is a projecting tool.
This is not part of thefinancial documents or
statements that you're going toget out of QuickBooks.
This is not something you'regoing to call your account on
and be like, hey, listen,where's my cashflow plan?
This is something you create.
This is a tool that, atStrategies, we use with every
(22:31):
single coaching client that wework with.
We make we, they, not we, theymake a plan for their business.
You make a plan for yourbusiness based upon what the
expenses of your company are,what sales we can do, and we
have a whole formula for that, asimple formula, but a formula
to help you project great sales.
(22:53):
And really, in all honesty, thisis where you get to write.
We could almost say there's thefourth chapter of your book.
This is where, actually, thebetter way to say this there's
three chapters in a book, butthis is where you get to put on
the front of that book, this iswhere you get the title of your
book and you get to put theauthor.
You get to be the author ofthis book.
(23:13):
So the cash flow plan acts asthat idea of the chapters that
happen in your book are writtenby you.
You're the author of that story, you name that story and that
starts with a cash flow plan tobuild the health that you want
in your company.
So you forecasting where youwant to go, the dreams that you
(23:37):
want to attain, the goals thatyou have for your business, all
get written in that plan so thatthey can show up in health,
performance and fuel.
So, daryl, as we kind of wrapour time up, let's kind of
summarize a couple of things,but let's kind of do it this way
If we had to kind of share,maybe let's pick out two, three,
(24:04):
maybe four key action itemsthat everyone could do now.
What would be one of the firstthings that you would say hey,
listen, you know, right now,just listen to the podcast.
What's one key action item orone key step that someone could
do?
Speaker 2 (24:15):
It's funny you mention that.
I was just thinking findsomeone you trust.
Maybe it's your coach, Maybeit's us here, someone here at
Strategies, to read yourstatements to you for you.
That's the beginning ofunderstanding.
As you were talking, I was justthinking I love to read.
I love to read and the way Ilearned to love to read is
(24:36):
because my mother first read tome.
My mother read to me and as Istarted learning and
understanding and how to read, Icould read for myself.
So, rather than the dauntingtask of, well, how do I read
this?
I have no idea.
Find someone you trust.
Go to someone trusted trust.
(24:57):
Go to someone trusted.
Like I said, if you're workingwith a coach, say, hey, can you
read these for me with me?
Or, like I said, a trustedperson, your accountant and get
them to read them to you, helpyou understand, and you'll be
surprised how quickly you'll belearning to read them on your
own.
I think that's a great place tostart.
Speaker 1 (25:15):
I think that's a great place to start and you
know I'm going to tie in withthat.
Another action step to do isand this all ties in, and I
don't know if this goes beforeor after or whatever but another
key step is make sure that thatstory, that start to look at
your story, gather, get thisinformation While you might be
right now it's like I don't knowthat I understand it correctly,
(25:37):
and that's where Daryl's greatsuggestion comes in Get your
story, you know, ask yourbookkeeper if that's what you
use, ask your accountant, orprint those out out of
QuickBooks these are allstatements, can be accessed very
simply and very easily andstart to get a look at your
(25:58):
story with all three of thesechapters, because that's the
first one of those first keysteps as well.
You know, get that, start to.
You know, read your story, helpsomeone, help read to you that
story if there's confusion.
And so this is these firststeps to unlock and, for me, the
last step, the last action itemI would start to put in place,
(26:20):
and if you've got one more darewe have you share it as well.
The one last thing I could startto say is and be proactive
about starting to build a planfor your future when it comes to
the financial health of yourcompany, whether or not.
Maybe the simplest way to thinkabout it right now is if you're
not doing anything thatrevolves around building a even
(26:43):
a budget.
A casual plan is different froma budget, but even just
starting with, let me just writedown my expenses and start to
build a solid budget for mybusiness that I can now live
within, so that I know I canstart to build health in a
healthy way.
That alone is a great startingpoint.
A cash flow plan allows you totake that whole idea and expand
(27:06):
it tenfold over into what thepotential of our company looks
like.
But if you're just talking,simplest place to start, just
start looking at where yourexpenses lie and making a budget
to stay within the expensesthat the company can afford.
Any last thoughts?
Speaker 2 (27:24):
Yeah, be fearless.
Be fearless Because you know,michael and I, yeah, we know
some stuff about thesestatements, but we didn't always
and I remember when he didn'tknow anything about them and he
remembers when I didn't knowanything about them, but we were
fearless, we had made up ourmind, we were going to learn, we
(27:46):
worked with each other, wehelped each other, we sought our
coaches, our professionals, andwhile we still don't know
everything, we still learn,we're still fearless.
We're willing to go out thereand make the effort, and that's
all I want to do is justencourage you to make the effort
You'll be all right, you're notgoing to goof it up.
Speaker 1 (28:04):
That's right.
Awesome stuff, all right.
Well, hey, daryl, thank you.
It's been great hanging outwith you and it's been great
hanging out with all of you.
We look forward to talking toyou again on our next Beauty
Business Strategies podcast.
Until then, have a great day.
Speaker 3 (28:19):
Thanks again for listening to the Beauty Business
Strategies podcast.
If you like this episode, besure to hit follow To learn more
about how strategies can helpcreate more fun, profit and
growth potential for you, yourcompany and your team.
We invite you to schedule afree 60-minute strategy session
by clicking the direct link inthe description of this episode.
Welcome to the Beauty Business Strategies Podcast.
I am joined today with my goodfriend, compatriot, educator
coach.
I don't know what else to say,but all kind of good things, mr
Daryl Jenkins.
How are you, daryl?
Speaker 2 (00:15):
I am better than good .
Speaker 1 (00:16):
How about you, michael?
I'm good.
I'm good, so I'm excited today,on today's podcast, to talk
about financial literacy.
Sounds like a stirring topic,doesn't it?
Speaker 2 (00:29):
It does have that tinge to it, but it's actually
quite fascinating once you getinto it.
Speaker 1 (00:34):
It is, it is.
So the reason we want to talkabout this with everyone is
simply, this is as much as wecan kind of have a little bit of
fun with the topic of financialliteracy and whatnot.
It's just really important.
I mean, simply put, it's justthat important.
And it's important because itimpacts every business.
(00:55):
And so I think maybe the bestplace to start, daryl, in our
conversation is just to kind ofsay when you think about
financial literacy, what's?
That really, what do you thinkthe definition of that is to you
?
Speaker 2 (01:08):
I think it's just understanding the numbers,
understanding your business.
What is it telling you?
You know, in simplest terms,financial literacy is just
knowing how my business is doing, is it healthy, is it
performing, you know, and mostimportantly, is doing, is it
healthy, is it performing?
And, most importantly, do Ihave cash?
Those things?
I think it just starts out withthose basic questions.
(01:30):
And what are the answers tothem?
Speaker 1 (01:38):
Right, and I was going to say, I think that the
important thing is that itdoesn't get any more complicated
than that.
It doesn't get any morecomplicated.
It was actually you know, forthose listening and watching it
wasn't but a couple of weeks agothat we did a class on exactly
this topic and I think the onething to me that comes out of
the light bulbs about that classthat always go off is exactly
(02:00):
what you just said therealization around, in a sense,
how simple it really is, eventhough we all come in to this
idea of financial literacy,seems complicated Because really
, what we're talking about iswhen we're talking about, as
Daryl just said in really clearterms.
You're talking about this ideaof understanding my balance
(02:23):
sheet, understanding my profitand loss statement,
understanding another statementcalled the statement of cash
flows.
So we talk about financialliteracy, it's about
understanding these accountingdocuments, and I think that's
where we start to put up just aton of barriers.
Speaker 2 (02:40):
Yeah, and honestly, I think there are people in the
world that want it to appearscary and complicated for their
benefit.
And it's not scary andcomplicated.
And so once we discover that wecan learn that language if you
(03:00):
will, that the ideas are prettysimple, then it starts falling
into place.
But somewhere along the line Ifeel like someone told us that
we weren't supposed tounderstand it Right, that you
know it's scary and you had tohave some degree or level of
knowledge.
And you know, for all intentsand purposes it's very basic
(03:26):
math.
It's not that complicated, it'sjust some people choose to make
it such.
Speaker 1 (03:32):
Right, you're right.
It just becomes a matter ofonce you understand the basic
terminology.
The rest of it goes away, andwe try to simplify that
terminology.
As a matter of fact, if in thefirst couple of minutes that
we've already been talking, inDaryl's introduction, it's
almost like he's very simpleterms, which is exactly how we
always phrase things to alreadysimplify the complexity of
(03:58):
things.
And so you know, whenever westart talking about this, if we
you this, we want to share withyou some key pieces of
information that can help yourfinancial literacy, and so I
think one of those key things islet's get a couple easy
principles in place for you.
The first is this we talk aboutthe fact that there are three
(04:21):
financial statements that youneed to understand.
Let's put it in perspective.
The example I always love touse is the idea of for those of
you that are readers and lovereading books think about it
this way these three financialstatements.
They are each an individualchapter in the story, the
(04:44):
complete story of your business,and so understanding what each
chapter says allows you to seethe complete story.
Because if you only ever readone chapter out of a book and,
daryl, I know you're a bigreader.
But if you only ever read oneor two chapters out of a book,
you'd have some idea of who thecharacter was, you'd have some
idea of what the plot was andwhat was happening around, but
(05:08):
you wouldn't have the fullpicture.
And so that's why many of usonly ever read one chapter or
maybe two out of our threechapter book, and the one
chapter we might read isgenerally around the profit and
loss statement, because it's theone that we are most familiar
with and the one that we thinkthat we most easily understand,
(05:32):
and so I love your idea aboutkeeping things simple in
principle.
So if you were to say just kindof simplify, simplify profit
and loss for me, darrell, prof.
Speaker 2 (05:42):
Profit loss is simply how much money came in and how
much of it went out.
What did you spend it on, quitefrankly, and did you have
anything left over?
Speaker 1 (05:54):
Right, and with that we like to kind of tie it into.
If we're looking at andthinking about it, as it tells a
part of your story, we use avery simple way to relate to
that Profit and loss tells youabout the performance of your
business.
That's the story that a profitand loss tells us.
(06:16):
So it tells us aboutperformance.
Now, we don't have time to getinto it because this is a
limited amount of time podcast,but what I do want to say is it
also tells you about profit andloss at the bottom line.
We look at it and we say, hey,listen, this tells us about our
profit, but, darrell, what's thekey thing that we have to,
unfortunately, what's the bubblewe have to burst at every class
(06:38):
?
Speaker 2 (06:39):
Oh, you're going to, let me be the bad guy, I thought
I was the guest here.
Speaker 1 (06:42):
No, you're going to be the bad guy, Well as it turns
out, profit is not cash.
Exactly that's a painful pillto swallow.
It's a painful pill to swallow,but while profit is not cash,
it does have the ability to becash, but this is why we need to
(07:04):
see every chapter of our story.
Speaker 2 (07:10):
But I'll also interject.
You know what is profit?
Profit's just simply.
It's a bit abstract, but itlets us know, it tells us if
value was increased or decreasedwithin the business.
And that's what we're lookingto do.
We're looking to increase value, right, and that relates right
back to the word performanceRight.
Speaker 1 (07:31):
That's exactly it.
So when we look at this, here'sthe one cool thing about the
profit and loss statement is,everyone out there loves metrics
.
You all love benchmarks, right,and so we love to use
benchmarks in our industry as ameasurement of how we are doing,
and what I would tell you isthis is where some of your most
(07:55):
critical benchmarks live.
This is, you know, out of allthree of the chapters of your
story, again a balance sheetbeing one chapter, a profit and
loss that we're talking aboutnow being another.
And then we'll also talk aboutthe statement of your story,
again a balance sheet being onechapter, a profit and loss that
we're talking about now beinganother.
And then we'll also talk aboutthe statement of cash flows as
the third chapter.
This chapter does tell us allabout those key benchmarks that
(08:17):
we so love to measure to see ifwe are in line and creating a
healthy company.
So let's touch on maybe one ortwo critical benchmarks that
might get measured as we look ata profit and loss.
It'd be important for all of usto be dialed into.
Darrell, what would be one toyou that just jumps out?
Speaker 2 (08:38):
Well, I want to step back one step and say, in order
to get those benchmarks, we needto have on that profit and loss
what's known as a percentage ofincome column, and I point that
out only because we look at somany that do not.
And so if your profit or lossstatement is going to have that
(09:01):
percentage of income column onit and so that you can compare
it to your benchmarks, and Ibelieve you will find that once
you do that, once you add thatcolumn, that's when it starts
unlocking and demystifying theprofit and loss statement,
because when you're looking atit just numbers, it's like wow,
(09:25):
I don't understand this.
However, if we've got thispercentage of income column, now
we're beginning the process ofunderstanding how our business
is performing and touching onthose benchmarks.
And I believe I have forgottenthe question.
But the question I believe waswhat are some important
benchmarks you want to look at?
(09:45):
Probably, in our industry, themost important is going to be
service payroll percentage.
You know, is our servicepayroll as a percentage of our
total income within thebenchmarks?
Most people?
Well, probably it's second onlyto profit.
We want to know that profit.
Speaker 1 (10:05):
Right.
Exactly, the key benchmarksthat you want to be dialed into
just in those two areas is we'retalking about service payroll.
We would recommend a 30 to 35percent as a comparison of the
expense in relation to yourtotal sales.
(10:25):
So that's why you want thatpercentage of income.
Is that measurement of how muchwas this?
What percent of service payrollas an expense was in relation
to your total sales or totalincome?
And you're right, that'sexactly one super critical
number 30 to 35%.
That's the range, a benchmarkthat we want to be in.
(10:48):
The other one you mentionedbeing net profit is the fact
that you want to have at leastsomething net profit Cause.
This is the why we all, this iswhy the profit loss is the most
popular, because you want tosee how much profit happened in
our company without the percentof income.
It is a little bit like I don'tknow if this is good or bad.
Speaker 2 (11:07):
Yeah, exactly.
Speaker 1 (11:08):
Taking a guess, just taking a guess at it.
But you know, at the minimum,at the minimum, you want to have
at least 10%, but really whatwe would strive for is 15 to 20%
, or again even higher.
But what?
And the reason being this isand this is why this is so
(11:28):
important to read this chapterof your story, because if you
don't, you know every littleexpense in the company, every
little pothole in that road,you're going to feel.
But when you start to build ahealthy profit in your company
and you can look at this and say, hey, I'm 18 percent net profit
, 20 percent net profit.
Now, all of a sudden, thoselittle potholes in the road, you
(11:52):
barely feel it.
You know they're there, but youbarely feel it.
It allows you to travel at amuch smoother, much faster pace
as a company.
So that's powerful.
So we just skimmed the surface.
But we've got two otherchapters to talk to you about.
You know one of the other mostimportant chapters where they
all have their importance.
But one of the most importantthings, too, is the chapter that
(12:15):
tells you about the health ofyour company, and that's when we
refer to the balance sheet.
The balance sheet is soimportant because it reflects
the health of the company.
If we had to pick out, like,one key thing to you, daryl, or
one or two key things about thebalance sheet, just to kind of
set the tone out there, whatcomes to your mind.
Speaker 2 (12:37):
I'm glad you said two , because there really are two.
The two main things I want toknow is you know what does the
company own?
You know what does it havespecifically in cash, but also I
want to know about theliabilities.
Who has claim on the thingsthat I own, in some cases debt?
(12:58):
So those are the two big thingsI'm looking for and I want to
know about on my balance sheet,right?
Speaker 1 (13:05):
And that's exactly what the balance sheet shares
with us.
So when you're listening andyou're thinking about, I have to
start looking at this, I haveto start to read this chapter of
my business.
It's exactly what it's tellingyou what do I own and what do I
owe, who has a claim on thoseassets?
And then finally, in the end,then that gives us we can also
(13:27):
look at our equity, or the valuethat we're building in the
company, and that is criticallyimportant for anyone.
Anyone that owns a businesswants to build stronger equity,
because at some point down theroad you're going to say, hey,
listen, I'm going to sell thisbusiness because that's the goal
of owning a business Someday topass it along to someone else.
(13:50):
You get the benefit of that andthey get the benefit of a
healthy company to keep growingtheir next chapter of their
lives in that way.
So this is why, again, balancesheet of critical, critical
importance to you.
Any other thoughts balancesheet wise that you think would
be just kind of important toshare at the moment?
(14:13):
Just something simple.
Or let me ask the question thisway what do you find the
biggest hurdle is, or challengemight be, for people that might
first be looking at a balancesheet?
Speaker 2 (14:27):
Well, I think the first hurdle would be like
understanding the terminology.
Like I just said, liabilities.
You know some folks might notquite understand at that moment
what that means Basically it's,you know, in a lot of cases your
debt Debt's included in that.
It's not the only thing, butwhat you really want to be
(14:47):
mindful of in your company isyou know how much debt do you
have compared to how much stuffdo you own.
You know you don't want to owemore than you own.
Right and liabilities, assetsequity tells you those things
and that's what.
(15:08):
That's what makes one of themajor reasons it makes the
balance sheet so important isknowing the health of the
company.
Speaker 1 (15:15):
Right, and speaking of health, before we move into
the last chapter that we want totalk about, speaking of health,
the balance sheet probably isthe most critical of the three.
From simply this standpoint,it's every leader's job to build
a healthier balance sheet.
Absolutely, because a healthybalance sheet benefits everybody
(15:40):
.
That's a part of the company.
This isn't just a directbenefit to one or two people.
It benefits everyone.
That's a part of that company,because healthy companies take
care of their team members well.
They are able to do really coolthings in their company.
And when I say really coolthings, that might mean that
healthy companies are able toexpand.
(16:01):
Healthy companies are able tooffer benefits.
Healthy companies are able tooffer a stability and growth and
increases in pay and all typeof things.
The dreams that you have, thosedreams are built on a healthy
company.
Healthy companies are able tomove fast and achieve really
(16:24):
cool things.
But we're talking about movingfast and we're talking about
achieving something great.
Well, we got to kind of thinkabout it this way and this
brings in the third chapter ofthis story of your business, and
that is we have to know.
When I think move fast, Iautomatically think about cars.
(16:44):
I'm big into cars.
I love cars.
It's kind of one of those hobbytype of things that I've always
been intrigued by, always love.
So I think about moving fast, Ithink about a car.
And the only way to move fastin a car is you gotta have a
tank full of gas to be able topower that car.
Or, if you happen to be a fanof electric and hybrid vehicles
(17:05):
and things nowadays, you gottahave a full charge.
Either way, you gotta have afull tank of something.
Whether it's a full tank ofelectric or gas, you gotta have
a tank full.
And that's where the statementof cash flows, the one chapter
no one ever reads.
The most neglected, the mostneglected.
Speaker 2 (17:23):
It's actually the chapter that tells you whodunit,
right, yeah right.
Speaker 1 (17:28):
That's the right way to say it If it's a murder
mystery, it's a murder mystery.
Speaker 2 (17:32):
Who did it?
I don't know.
I'm not reading that chapter.
I'm not going to do that.
Speaker 1 (17:36):
But you got to know this chapter because it is about
the fuel of the business.
It does give you that whodunit.
In other words, this is aboutyour cash, because cash is the
fuel of every business.
Now you know why do many of usnot read this chapter?
Speaker 2 (17:56):
Because we don't understand it.
Speaking from personalexperience, it looked like
gobbledygook, right.
But again, once, and it's verysimple, that's the nice thing,
it is a simple unlocking.
Once you have that simpleunlocking of how to read it,
it's like you can't unread it,right?
(18:17):
So, yeah, that's probably thereason it's the most neglected
is because we're not quite surehow to start reading that
chapter, right?
Speaker 1 (18:28):
And the one.
I will tell you this without adoubt.
I will tell you this without adoubt, and Daryl and I have done
this financial literacy classnumerous times, numerous times
and every single time.
This is the statement that,again, is most misunderstood,
(18:49):
most never look at, becauseagain it does feel like very
confusing, but everyone comesaway going.
This is my favorite statement,because we all want to know
what's happening with the cashin my company, exactly.
You know, the profit lossdoesn't tell you about cash.
That tells you about profit.
This tells you did we take thatprofit and actually turn it
(19:11):
into cash and, if so, what arethe actions and behaviors that
did that?
Why did it turn into cash orwhy didn't it turn into cash?
And then this directlyinfluences the health of your
company, because a healthycompany has more assets, more
cash, more things that you own.
Then it does things that youowe, and so cash is the best
(19:37):
asset that you can have.
And so this is the really Isaid the health is the most
important.
But all these statements havetheir critical point.
Oh, absolutely All thesestatements have it.
So what would be like if we'retalking about because again it
is a little bit confusing, we'renot gonna get into the workings
of it on this podcast.
Too much to talk about when itcomes to the actual workings of
(19:58):
it.
But if you were to run this,what are simple things that
every one of us could do rightnow?
If we ran that report, whatwould be a couple of simple
things that you would say, hey,listen, start looking at.
Speaker 2 (20:11):
Well, it's simple and it's a little bit of a broad
answer, but I want to know howthe cash is moving out, what
cash, where's the cash comingfrom or where is it leaving to?
And what I mean by that is, youknow, because the statement
does tell you about the flow ofcash in your company.
If a lot of that cash is comingin from bank loans or you know
(20:37):
credit card drafts, things likethat you need to know that.
You need to know that becauseit's going to affect your
balance sheet.
Also, too, if an abundance ofcash is coming in, you want to
know how it came in, not onlybecause maybe it came through a
financial loan, maybe it's giftcards, right, you know?
(20:57):
So if we sold a bunch of giftcards and this massive cash came
in, we need to know where itcame from so we know what to do
with it.
Right, you know?
Because when it shows up in ourbank accounts, we'll say, oh,
this is gift card money.
We can't spend that just yet.
We've got to wait for it to beredeemed instead of going.
(21:19):
Woohoo, I got $10,000 in theaccount.
Drinks are on me.
So I think those are someimportant things to consider.
Speaker 1 (21:27):
Absolutely these three statements.
We talked about your balancesheet telling us the health of
our company, the profit and loss, telling us about the
performance of our company.
Statement of cash flows,telling us about the fuel, the
cash of our company, what'shappening with that.
All of these things I wanteveryone to realize is these are
all outcomes.
(21:48):
These are all what's happenedin your business, not what can
happen in your company.
And so there is one key thingjust to kind of give start
planning the seeds is one keything that all of you can do is
start working with a cashflowplan, and that is you're making
(22:10):
good projections about thegrowth of your business.
This is a projecting tool.
This is not part of thefinancial documents or
statements that you're going toget out of QuickBooks.
This is not something you'regoing to call your account on
and be like, hey, listen,where's my cashflow plan?
This is something you create.
This is a tool that, atStrategies, we use with every
(22:31):
single coaching client that wework with.
We make we, they, not we, theymake a plan for their business.
You make a plan for yourbusiness based upon what the
expenses of your company are,what sales we can do, and we
have a whole formula for that, asimple formula, but a formula
to help you project great sales.
(22:53):
And really, in all honesty, thisis where you get to write.
We could almost say there's thefourth chapter of your book.
This is where, actually, thebetter way to say this there's
three chapters in a book, butthis is where you get to put on
the front of that book, this iswhere you get the title of your
book and you get to put theauthor.
You get to be the author ofthis book.
(23:13):
So the cash flow plan acts asthat idea of the chapters that
happen in your book are writtenby you.
You're the author of that story, you name that story and that
starts with a cash flow plan tobuild the health that you want
in your company.
So you forecasting where youwant to go, the dreams that you
(23:37):
want to attain, the goals thatyou have for your business, all
get written in that plan so thatthey can show up in health,
performance and fuel.
So, daryl, as we kind of wrapour time up, let's kind of
summarize a couple of things,but let's kind of do it this way
If we had to kind of share,maybe let's pick out two, three,
(24:04):
maybe four key action itemsthat everyone could do now.
What would be one of the firstthings that you would say hey,
listen, you know, right now,just listen to the podcast.
What's one key action item orone key step that someone could
do?
Speaker 2 (24:15):
It's funny you mention that.
I was just thinking findsomeone you trust.
Maybe it's your coach, Maybeit's us here, someone here at
Strategies, to read yourstatements to you for you.
That's the beginning ofunderstanding.
As you were talking, I was justthinking I love to read.
I love to read and the way Ilearned to love to read is
(24:36):
because my mother first read tome.
My mother read to me and as Istarted learning and
understanding and how to read, Icould read for myself.
So, rather than the dauntingtask of, well, how do I read
this?
I have no idea.
Find someone you trust.
Go to someone trusted trust.
(24:57):
Go to someone trusted.
Like I said, if you're workingwith a coach, say, hey, can you
read these for me with me?
Or, like I said, a trustedperson, your accountant and get
them to read them to you, helpyou understand, and you'll be
surprised how quickly you'll belearning to read them on your
own.
I think that's a great place tostart.
Speaker 1 (25:15):
I think that's a great place to start and you
know I'm going to tie in withthat.
Another action step to do isand this all ties in, and I
don't know if this goes beforeor after or whatever but another
key step is make sure that thatstory, that start to look at
your story, gather, get thisinformation While you might be
right now it's like I don't knowthat I understand it correctly,
(25:37):
and that's where Daryl's greatsuggestion comes in Get your
story, you know, ask yourbookkeeper if that's what you
use, ask your accountant, orprint those out out of
QuickBooks these are allstatements, can be accessed very
simply and very easily andstart to get a look at your
(25:58):
story with all three of thesechapters, because that's the
first one of those first keysteps as well.
You know, get that, start to.
You know, read your story, helpsomeone, help read to you that
story if there's confusion.
And so this is these firststeps to unlock and, for me, the
last step, the last action itemI would start to put in place,
(26:20):
and if you've got one more darewe have you share it as well.
The one last thing I could startto say is and be proactive
about starting to build a planfor your future when it comes to
the financial health of yourcompany, whether or not.
Maybe the simplest way to thinkabout it right now is if you're
not doing anything thatrevolves around building a even
(26:43):
a budget.
A casual plan is different froma budget, but even just
starting with, let me just writedown my expenses and start to
build a solid budget for mybusiness that I can now live
within, so that I know I canstart to build health in a
healthy way.
That alone is a great startingpoint.
A cash flow plan allows you totake that whole idea and expand
(27:06):
it tenfold over into what thepotential of our company looks
like.
But if you're just talking,simplest place to start, just
start looking at where yourexpenses lie and making a budget
to stay within the expensesthat the company can afford.
Any last thoughts?
Speaker 2 (27:24):
Yeah, be fearless.
Be fearless Because you know,michael and I, yeah, we know
some stuff about thesestatements, but we didn't always
and I remember when he didn'tknow anything about them and he
remembers when I didn't knowanything about them, but we were
fearless, we had made up ourmind, we were going to learn, we
(27:46):
worked with each other, wehelped each other, we sought our
coaches, our professionals, andwhile we still don't know
everything, we still learn,we're still fearless.
We're willing to go out thereand make the effort, and that's
all I want to do is justencourage you to make the effort
You'll be all right, you're notgoing to goof it up.
Speaker 1 (28:04):
That's right.
Awesome stuff, all right.
Well, hey, daryl, thank you.
It's been great hanging outwith you and it's been great
hanging out with all of you.
We look forward to talking toyou again on our next Beauty
Business Strategies podcast.
Until then, have a great day.
Speaker 3 (28:19):
Thanks again for listening to the Beauty Business
Strategies podcast.
If you like this episode, besure to hit follow To learn more
about how strategies can helpcreate more fun, profit and
growth potential for you, yourcompany and your team.
We invite you to schedule afree 60-minute strategy session
by clicking the direct link inthe description of this episode.
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Does hearing about a true crime case always leave you scouring the internet for the truth behind the story? Dive into your next mystery with Crime Junkie. Every Monday, join your host Ashley Flowers as she unravels all the details of infamous and underreported true crime cases with her best friend Brit Prawat. From cold cases to missing persons and heroes in our community who seek justice, Crime Junkie is your destination for theories and stories you won’t hear anywhere else. Whether you're a seasoned true crime enthusiast or new to the genre, you'll find yourself on the edge of your seat awaiting a new episode every Monday. If you can never get enough true crime... Congratulations, you’ve found your people. Follow to join a community of Crime Junkies! Crime Junkie is presented by audiochuck Media Company.
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