Open letter to Barry, Harry, Nancy and all our other employees…

2010 is a year I hope will change.

I’ve decided I’d like my country back. I don’t like what you guys are trying to change my country into. Freedom, personal liberty, and the opportunity to build our lives into whatever we really want, these have made our country into the best place to live on the planet. I get the distinct feeling now that you guys don’t like those things which made us prosper and you want us to become more equal to Canada or Norway. Well, sorry, and no thanks, we think we hit on something pretty damn good here and we’d like to keep it.

You guys are ramming all your changes through as rapidly as possible because you know that once we learn about it, we don’t want it. You know these things are political suicide which is why you seem hell-bent to shove it down our throats before we can do anything to stop you. People are wondering why you don’t get the message, oh, you got the message alright, you just don’t give a rat’s rear-end, you know you have a very small window here and you are not going to let it go un-used.

While we are waiting patiently for election day, we are deciding to change our lives. We are getting out of debt. We are taking classes. We are starting businesses. We are exercising freedoms to become more independent from you. We are like a sleeping giant, much bigger and way more powerful than you. A little groggy because we just woke up, the realization of what you guys are all about is sinking in, and we are now paying attention. We are a patient and tolerant people, peaceful by nature. The pioneer spirit is alive and well and we will be exercising freedom in 2010 like never before in recent history.

Those of us that you haven’t outraged, you’ve pissed off, and those you haven’t pissed off, you have profoundly disappointed. We are Americans and that means we don’t just take it, we act. We are re-grouping, doing a little community organizing of our own, we called them tea parties, you insulted that. We are realizing maybe our grandparents were on to something, so we’re getting debt-free and living a little more simply. We understand now to our core that there is no such thing as job security, and so we are building our own security and it does not involve you guys.

We are awake, we are aware, we are watching everything you guys do. Until election day rolls around, we are busy building our lives and new businesses, becoming stronger and more self-sufficient every day. Our confidence is growing. We’re not afraid of failing anymore, we are afraid of not really trying.

We want the future to be better than the past. We want to have hope for our children and grandchildren but we must have the freedom to pursue advancement and success, not accept what you offer, genuflecting to mediocrity. We want you to rein in big business to make it play fair, not handcuff small business to make it unprofitable. Small business creates real jobs, you need to get the hell out of our way. We love small business and true capitalism so much, we want to build one on the side, even while we have a job, it’s so easy to do now because of the internet, and we can get all the help we need right online. God, it’s a  good time to be alive!

A small, free business of my own! Genuine security. Real change. Hope for a brighter future. 100% pure American attitude.

Here’s hoping we can give you the same opportunity starting next year.

Companion and follow-up article to “Balance Sheet Debits and Credits Simply Explained.” by Bruce Van Cleve.

If a Balance Sheet is like a picture, a snapshot of a point in time, then the Income Statement is like a movie. Think of the statements going in this order: Balance Sheet snapshot, then Income Statement movie, then another Balance Sheet snapshot at the end of the movie, and so on. It shows you what went on in the business over a period of time, usually a month, quarter or year. Remember, the Balance Sheet’s left side (List of Assets) is the Debit side, and the right side (Liabilities & Equity) are Credits. The Income Statement’s (a.k.a. Profit & Loss or just P&L) job is to show a breakdown, by category, of how the equity in the company changed as a result of doing business that period. It shows that either the company made money, which increases equity (a credit), or it lost money, which decreases equity (a debit).

Knowing this allows you to figure out the debits and credits on the Income Statement. If the company made money, which we know increases equity, then credits must have exceeded debits, therefore, income is a credit, because we need more income (and credits) to increase equity on the balance sheet, and so expenses must be debits. If the company lost money, it’s expenses exceeded income, therefore, debits exceeded credits. Whatever the “bottom line” is on the income statement, profit or loss, flows through to add to, or subtract from, the equity on the end-of-the-period balance sheet.

All these statements are designed to answer the question, “what is going on in my business?” so that the owner is not guessing, or going on hunches and gut instincts. Another one I see a lot is relying on whatever the bank balance says, as a way to tell what is going on with the business. That is not good. The owner needs certain information to make better, longer-term decisions. A good bookkeeping system gathers this information efficiently and is able to give the owner these reports easily, quickly, and efficiently. If you think it’s good to operate a business based on how much cash is in the checking account, you really need to go back and learn the fundamentals of business accounting if you don’t want to be fooled by false information!

The Income Statement answers the question, “WHERE did we make or lose money”? This is why income and expenses are grouped into categories, or “accounts”. These accounts are further grouped by major category such as “Cost of Goods Sold”, which are the direct costs, such as materials and labor. Another major category of expenses are “Selling, General, and Administrative” or SG&A, which might be listed separately as Selling Expenses, then G&A. Again, when properly designed and setup, this quickly shows the owner which area of the business is OK and which ones are out of whack in relation to the others or in relation to your past history. Efficiency means, for instance, the owner can quickly see “General & Administrative” (your overhead) has been climbing over time, pinpoint a particular account that’s the culprit, and narrow the search to those bills that hit that account. Quick and efficient, and no guessing! That’s what a good accounting system does for you.

Finally, I will share with you a debit and credit secret insight. I hope it is obvious that every transaction involves an equal amount of debits and credits. After all, things must remain in balance! Knowing one side, leads you to figure out what the other side should be. OK, here’s the secret: most normal, daily transactions that are part of the business that the company conducts with the outside world, in other words, transactions which affect income or expenses, involve BOTH the Income Statement AND the Balance Sheet. You record a sale: Credit Sales (I/S) and Debit Accounts Receivable (B/S). Enter a bill: Debit an Expense (I/S), Credit Accounts Payable (a B/S Liability).

Receiving payments or paying bills are transactions but they don’t add to income or expense, because those were already recorded as such. You receive a payment: Debit cash and Credit Accounts Receivable (both B/S asset accounts). Pay a bill: Debit Accounts Payable (Liab) and Credit cash (again, both B/S accounts). Note the distinction, a transaction that is part of the normal business with the outside world affects both statements. That’s why if the business borrows $100,000 from the bank, that’s obviously not revenue from customers, even though it increases cash. In that case you would Debit cash and Credit Long Term Debt (both B/S accounts). Buying a piece of equipment with that $100,000 has nothing to do with customer transactions (normal expenses) so you would Debit Equipment (asset) and Credit Cash (also an Asset).

To summarize, only outside-customer-related transactions will end up as part of the Income Statement, with the other side of the transaction affecting a Balance Sheet account. This is why a properly done accounting system is essential to the owner. Cash in the checking account increased so we must be making money, right? Wrong! Where did the increase come from? That’s the question! Did you simply borrow money? Did you collect a lot of receivables (sales from past months) but you had few current month sales? Remember the fundamental question, did THE BUSINESS generate money? That is the question that the Income Statement, or Profit & Loss Statement will answer!

Let me know what you think by leaving a comment below.

Fact: 25% of you do-it-yourselfers (and you know who you are) will incur an IRS penalty which averages $670.

Source: Wall Street Journal.

If you want to read the article that talks about this fact, email me, if you ask nicely, I’ll send you a reprint I purchased. Copyright law prevents me from just posting it here without their permission.

You can transfer this risk to someone else by outsourcing payroll, kinda like the way insurance works.