Video Transcript: How to Manage part 2 - Finance

All right, back to management, how to manage a business. Part two, we're going to look at finance. We looked at time time management. You only have so much  time. You have to manage your goals. Those are the big things, and then the  tasks that contribute towards a goal. And then finally, each step that  accomplishes a task that leads to a goal. The second thing you have to learn  how to manage is finances or money. A verse I like to talk or share is Luke 14:28 suppose one of you wants to build a tower. Won't you first sit down and  estimate, estimate the cost to see if you have enough money to complete it.  Business includes money you're trying to make money with your business, and  keeping track of it and knowing where it goes, and knowing whether you're  actually successful in making a profit is very important. A lot of people will start a business and they think they'll be succeeding, and then at the end of the year,  they wonder why they don't have any money. It's because they haven't managed the money for somebody. You have expenses, what kinds of things are under  expenses? Well, first of all, you have your product. You have to, maybe you  make your own product. But then there's the materials that you need with the  Bibles. Again, I, you know, I have to print. I mean, this is 100 or 300 page book,  and I have someone print that, and I have to pay them, and then I have to store  them. I have to make the cover. So all these things that go into a product, well,  how do I manage that? I have a customer that wants 5000 Bibles, and I used to  store 4000 of them, and ship 1000 and then when they would run out, they'd  want the next 1000, and they'd only pay when they wanted them. So I had to  pay for all 5000 of them. And gradually get my money back, and gradually get  the profit number two, interest lost on product. When you buy product, you're  buying way more than what you can sell today. So when you buy product, you  spend a certain amount of money, and that money is gone. You have to  understand that when you have money and you spend it. Let's say I bought  $5,000 worth of product, and now I don't have the $5,000 I had it before, and I  could do something with that money. That $5,000 is at least worth interest. I  could invest it in something and get interest. So the product not only cost me  $5,000 but it also costs me the interest lost on that $5,000 so if i bunch of by, if I  bunch buy a bunch of product, and then I put it somewhere, I stick it in my  basement, or stick at my garage or some warehouse or some barn, and I think,  well, I paid for it, I can just keep it forever. It costs you something to keep it,  because you could have done something else with that money. People have this idea that once they have it, it's free. Someone has a car that they're not using,  and it's worth $2,000 and they go, Well, I might as well keep it. Maybe I'll need it  one day. You have to ask yourself, would you go out and buy that car for $2,000  right now? Because that's what you're doing by holding on to something that's  worth $2,000 it's the exact same thing as if you went out and bought it for  $2,000 so you have to decide whether you really want to keep something. So  there's the product, but then there's the interest lost on the product as you hold 

on to it. Then there's tax. If you're in a for profit business and you're selling to  ordinary people, and you sell a finished product to them, you have to charge  them tax and then pay tax on that, at least here in the United States. Number  

four, there's the marketing expenses, researching advertising, online presence,  all the things that are involved in the whole marketing aspect, transportation,  maybe you have to drive here. When I ship things, I get to drive over to the post  office. If you talk to a customer, you have to drive over the you have a product or service. There's a transportation cost. There's a communication cost. Today,  generally, if you have a business, you gotta have a phone. So you gotta pay for  that phone. A lot of times you need the internet, so now you got to pay for the  internet as well. So there's communication costs a web presence, a simple  website, maybe you have to have someone do it, or you have to learn how to do it yourself. The more complicated the website gets, the more you have to pay,  and if you start doing ads online and so on, that costs money too. Liability. Some businesses, you might get sued. Someone doesn't like your work, or they get  hurt from your thing. So you have to think about liability, and there's different  ways to protect yourself. Number nine, are you going to hire employees, which  can get very expensive, or are you just going to contract out, and I recommend,  if you're starting a business, to just hire people to do specific things for you. It's  like a contract. I'm going to contract you to make my website. I'm going to  contract you to try to sell something, and I'll pay when you actually sell  something, employee, you're sort of stuck with. You hire them, and whether  there's work there or not, you have to pay them. Office, warehouse. You need a  place to work when you're starting out, just start in your own home. You have the home already. It's already being heated. It really doesn't cost extra for you to just start right there. If you have some products, stick it in your house. Stick it in your garage. Try to get by with as little expense as you can. If you start a business,  and you have to pay this monthly rent on some space. You have to make that  much money and profit just to break even. So if you can hold off on getting  space and office space and all of that, there's a lot of hassle. I know at home,  maybe there's kids all these issues. But to get started, minimize your expenses  as much as you can shipping. Like in my business, I have to ship, but I just pass the shipping cost onto the customer. Whatever the shipping is, is what I send  onto the customer, but I have to pay it ahead of time, and then eventually get  paid. Okay, then you have income, income. You have the sale of your product or your service. So I might sell this book for $3 depending on how many people,  how much someone orders. If they order many, the price goes down. If they  order a few, the price goes up. So I sell it for a certain price, and I take that  income in, but that's not the income that I make. That's not the profit. How do  you collect? You have to figure out how you how are you going to collect? Are  you going to charge up front? Do people have to pay up front with my business? Because I'm dealing with churches and ministries. I don't charge up front. I 

charge when they finally get the product. So I have to pay for everything, and  money goes out, and the money doesn't come back to me, maybe for many  months later. So I have to have enough money to be able to do that, and  eventually people will pay. So I at this point, I don't take credit cards. If you do  take a credit card that costs you one or 2% the credit card company wants to  make money off of that, certainly I take cash, but most of the customers don't  live near me, so most people pay by check, and there's no fees for that. It works  really well. Anyway, you have to decide, what are you going to do? How are you  going to collect the money? Generally, the more you can get up front, the better.  When does the customer pay? And how much I tried doing, you have to put 10% down, and it became this big management hassle. It just depends on how  organized you are and what your particular business is. And I have a long track  work record of people paying very few people don't pay, so I'm a little more  lenient on that, and people eventually do pay. But in your business, you're  gonna have to figure out, how does that work? Because a lot of people will do all the work and then they don't get paid. That doesn't work profit. So you have, you have your expenses and your income. Those are two numbers you really have  to be on top of. And by the way, most people do not keep track of all the  expenses. You should also keep track of your hours, because your hours are  worth something too. That's an expense. Your time is not free. So what is profit?  Profit is your income, whatever you get from the customer, minus. Your  expenses, all your expenses, you have to really list all your expenses. My  brother was talking about some guys. He's trying to do some he's trying to do a  little partnership. And this guy doesn't understand all the expenses. He doesn't  list them down. And so he wonders at the end of the year why he isn't making  any money accounting. Accounting is the term that we use to keep track of the  finances. That's all accounting is. And there's two basic ways of doing  accounting. One is called the cash basis accounting, and one is called the  accrual method of counting. Now the cash basis of accounting just makes  sense. It recognizes revenues that's money coming in and expenses that's  money going out at the same time the physical cash is actually received or paid. So when I was at the Bible League, I had a budget, and I would buy $10,000  worth of Bibles. So when I paid the money for the Bibles, I actually sent the  check out to the company that I'm buying the Bibles from. That was an expense  that makes sense. $10,000 out now, when I sell the Bible, or 10 Bibles, to a  church, and they pay me with a check, and I'm holding the check, I'm holding  the money goes into the bank, then I write it down as expense, it made sense to  me. That's, you know, and that's the simplest way to do your accounting. There's also the accrual method of accounting, and that took me a while to figure out  what this is. It recognizes income in a company's books at the time the revenue  is earned, but not necessarily received, and records expenses when liabilities  are incurred, not necessarily when they're paid. The problem with the cash 

method is I buy the Bibles, and now it's expensed out, and now I sell it to  somebody, but they don't pay me for a long time. So when does it go on my  books? Let's say they don't pay to the next year. So the next year I have, I have  all this expense, but I don't have any income to offset that expense. And then  the next year I have all this income coming in, and my expenses are going to be  really low. So I know in the Bible League, I had a hard time understanding I got  this budget. I went and bought 10,000 Bibles. Let's say at the end of the year  I've got some budget left, so I'm going to spend it right. Otherwise I lose it. So I  buy $10,000 worth of Bibles. And then I begin the new year, and I say to the  finance people, okay, this is a new year. I have a whole new budget. And then  the finance guy would come to me and say, Well, you don't have a whole new  budget because you have 10,000 Bibles still in in in the warehouse. I said, I  know, but I spent the money. The money's gone. And they said, No, you didn't  spend the money. The money is in those Bibles. The Bibles are worth $10,000  there's still something that you possess. And I'd say, Yeah, but I spent it. I can  show you the thing. Here's the bill. I paid this bill. Yes, all you did is convert  $10,000 in money into $10,000 of Bibles. They're still you're still holding on to  them. Inventory is just a different form of cash. So anyway, it can get quite  complicated, but I recommend you start with the cash basis accounting. If it's a  simple business you're just starting out. The accruel method is way more  complicated. Just start out with the cash basis, then we have governance as  part of this whole, managing finances, legal status. I don't know what your  country is. Do you need a license to start a business? Depending on your  business? Do you need to register? How do you do that? In our country, there's  a few different ways of thinking about owning a business. One is sole propriety  and sole propriety proprietorship is a type of business entity that is owned and  run by a person in which there is no legal distinction between the owner and the  business. The owner is in direct control of all elements, is legally accountable for the finances of such business, and this may include debt, loans, losses, etc.  Sole propriety is is, that's what I do with my business. It's just the same as any  income that I get. I just fill one. Tax form. It's a business thing, all the liabilities,  all the expenses, all the income is just goes on my personal tax thing that I do  for the government. It goes on my personal tax return. Everything is just related  to me, and I am liable for it. It suits anything that happens. It's all just connected  to me. Partnership. A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business,  including money, property, labor or skill. In return, each partner shares in the  profits and losses of the business. Because partnerships entail more than one  person in the decision making process, it's important to discuss a wide variety of issues up front and develop a legal partnership agreement. So when you go into a thing with someone else, now you're sharing something, and to share it, you  have to understand who's contributing what. How is this going to work? How are

disagreements? What happens when one partner wants to get out of it? There's  a lot of decisions that have to be made up front or you end up with trouble down  the road. It's a little more complicated. And then you have corporations. A  corporation is a type of business which is formally registered as a public owned  company. Is as it's recognized as a separate entity from its owners. So our  company is a thing in and of itself. It's like a person, and we all invest in this  thing. This thing is not my personal tax return. This thing makes its own money,  and the money sits there, and when the corporation then pays me, as one of the people who are part owners of the corporation, it just pays me, now that there's  a lot of plus sides, because all the liability is on the corporation and not me.  People can't sue me. They sue the corporation, but on the downside, a  corporation has to pay taxes. The business has to actually pay taxes. And then  sometimes, when I take money out of the corporation, I have to pay taxes too.  So sometimes there's a double tax, depending on how you do it. So you have to  figure out which way you want to organize your business. There's two basic  kinds of business. There's for profit and there's nonprofit, a for profit business. I  think I've talked about this in one of the earlier videos. For profit is when I am in  this business and I'm trying to make money, and the money that I make now I  have to pay taxes on everything gets taxed in the nonprofit. I have this business  entity, and the money that comes in is not taxed. Now, if I'm hired by the  nonprofit, the nonprofit is paying me a salary to help run it, the money I get is  taxed because it's personal income, but all the money that the nonprofit makes  is non tax, and because of that, you can get gifts. People can donate to your  nonprofit. So one of the reasons why you start a nonprofit is so that people can  actually donate. In other words, if you're starting a business that probably, in the  end, won't make money, but it's a good thing to do, then you want to go  nonprofit. The nonprofit can pay you, but you can get donations from people,  because whatever you're doing does not pay its way. You can't do that in the for  profit world. In the for profit world, you have to engage in something that actually makes money, or you're going under you don't get donations for a for a for profit  business, all right. Last thing in managing finances. Tools for managing finances, one of the easiest, quickest, cheapest ways to do it with is with like an Excel  spreadsheet or a generic equivalent. There's there's stuff that's out there that's  free, that you can use. They all work the same, and it's like the poor man's  software. You can you can feel like you're a software developer when you use  Excel. If you don't know excel at all, there's plenty of things online that will help  you within two hours, you can figure out the basics. I mean, even when I add up  numbers, I just type in the numbers in Excel, then there's this button called  summing, and it automatically adds them all. But I keep track of my Bibles. And  you know, because I buy a Bible at 55 cents, this time, the next time, it's 60  cents. And so I have a little formula this book times 56 cents, plus shipping, plus  the cover, and I can just put in the numbers, and it tells me my profit, it tells me 

my expenses. It keeps track of the whole thing, and, you know, and I did it  myself, you know, took me an hour or so to figure out how to do it. So I  recommend Excel you start and Excel is an excellent thing to manage a lot of  different things, not just finances. If you start doing really well programs like  QuickBooks, it's an accounting program. It's got more bells and whistles, but it  also takes more study to figure out how it works. There's a business part, there's personal, there's taxes, all these different things, there's payroll. And the more,  the bigger your business is, the more complicated it gets. But to begin to just  start it simple, just keep an Excel spreadsheet. It'll it'll keep track of most  everything that you're doing. So management, you got to manage your time?  Got to manage your money. And last we're going to look at next time is how to  manage people.