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The Big River series is a 12 part installment about a company desperately seeking cash to fuel their growth and the struggles they face trying to find it.

Business Finance | The Big River | Chapter 1 – We’re Making Money. Why Are We Broke?

The Big River series is a 12 part installment about a company desperately seeking cash to fuel their growth and the struggles they face trying to find it.

“We’re broke,” Tom mumbled to himself. Tom Sampson is the controller of Ace Business Stuff and was reviewing his latest calculations about their cash flow.

“What do you mean, we’re broke?” Tom looked up sheepishly to see John Wilson standing in his doorway. He fingered his collar and turned to address the company’s CEO. “We can’t be broke because business has never been better,” John said. (more…)

Business Finance | Warren Buffett | Should We Depreciate Our People?

A Weekly Business Finance series for Non-Finance Executives!

“Financial Adrenaline” is a term we love around here because it reflects our commitment to help you turbocharge your business with practical tips and techniques to improve free cash flow, the lifeblood of business. As a further extension of our Financial Adrenaline program, we’re going to share a new Business Finance Tidbit every Wednesday specifically for those business executives who don’t have a finance background.

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Depreciation = Cash? Why do we care?

We’ve kinda been on a Warren Buffett tear lately, and last week I encouraged you to read his recent 2010 Annual Report to Berkshire Hathaway shareholders.

I want to plant another seed this week about an often misunderstood concept: [kastooltip msg=”DEPRECIATION” tooltip=”In accounting, an expense recorded to allocate a tangible asset’s cost over its useful life. Because depreciation is a non-cash expense, it increases free cash flow while decreasing reported earning. It is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for $1 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense $100,000 (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.”]. (You can see the definition by placing your cursor over the term.)

How is Depreciation Relevant to EBITDA?

Today, let’s just think about it in terms of EBITDA. In Does EBITDA Bury Its Own Dead?, I wrote about the perils of treating EBITDA as a placeholder for cash flow, and Buffett couldn’t agree more.

In his Annual Letter to Shareholders, 2002, Buffet describes (more…)

Business Finance | Why you should read Warren Buffett’s Letter

A Weekly Business Finance series for Non-Finance Executives!

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Read Warren Buffett’s Letter to Berkshire Hathaway Shareholders

So, why not jump into the deep end right now by reading Business Finance is about much more than finance

I’ve said before that leaders don’t have the luxury of confining their interests to just a few things

(more…)

Business Finance | Are You Ready for an Injection of Financial Adrenaline?

If you’ve ever exercised by lifting weights, you know that the amount of the weight on the bar is only one variable that needs to be considered for a particular exercise
If you’re doing a bench press, you can add more weight because your chest and shoulder muscles help your arms to lift the weight
But if you put 50% of that total weight on each of two dumbbells, you can’t lift either one
You’ve probably also learned that you can’t use the same weight for curls as you do for bench presses

How much weight can you really lift?

[pullquote]“Make everything as simple as possible, but not simpler
” ~ Albert Einstein[/pullquote]
Likewise, if you’re going to do only one repetition, you can handle more weight than if you’re going to lift it ten times
If you are lying flat, (more…)

Leadership Styles: The Smartest Guys in the Room can kill you!

“When a fellow says it hain’t the money but the principle o’ the thing, it’s th’ money.” — Frank McKinney

‘Always ask why. Dig deeper. Get the facts.’ Avoid the crowd mentality

“Ask Why” was their motto.

“Wheel Out,” “Fat Boy” “Death Star” and “Get Shorty” were some of the nicknames applied to their strategies.

Confirmation letters of successful trades were addressed to names like “Mr. M. Yass and “Mr. M. Smart” … and I think you can parse the underlying contempt.

“Rank & Yank” described their people performance system, “Pump and Dump” their trading strategy.

About $70 billion of market value was destroyed, more than 20,000 employees lost their jobs and pension funds worth $3.2 billion were destroyed, more than two thirds of which belonged to retirees with little chance to rebuild.

I had always intended to watch “The Smartest Guys in the Room,” the 2005 movie based on a book by the same name from co-authors Peter Elking and Bethany McLean, but it got lost in the shuffle until last week.

It chronicles the Enron cataclysm, whose meteoric ascent was violently terminated with its bankruptcy on Dec. 3, 2001.

“Be like Enron” is still an ignominious curse

It’s hard to believe this happened almost 10 years ago since to be “like Enron” still reverberates as an ignominious curse. It’s really more like a viral infection, though, because so many of the forces that drove its destruction have cleaved similar fissures in scandals from (more…)

Warning: Sell Wine? Ignore Cash? Adios!

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Why is this so hard? We find ourselves entrenched in the quagmire of a lingering and painful recession … more companies than ever need stronger financial management … and yet so many of them remain painfully slow to recognize it. Sure, many have trimmed costs and are paying closer attention to nickels and dimes, but few of them have a comprehensive financial strategy.

Business Finance? Meet the Wine Industry!

So, in some misguided way, I guess it feels good to have some company … because the need for financial discipline was a common refrain among wine industry cognoscenti at this year’s Symposium, Competing in a Rapidly Changing Global Wine Market. The economic shock waves of the last 24 months have rocked the wine industry, dragging many of its members, in some cases kicking and screaming … into an era where professional management and greater financial discipline are demanding front row seats alongside the entrepreneurs and artisans that have reigned over the California wine industry
[pullquote]Stronger financial management is overdue in the California wine industry.[/pullquote]

Building a bridge between the financial community and the wine industry is one of the founding precepts of the Wine Industry Financial Symposium formed in 1992. Last Monday, I was privileged to lead a 90 minute workshop devoted to Practical Strategies to Improve Cash Flow, in which I shared a few “diamonds in the rough” about how to get more juice into your bank account … and how the California wine businesses can integrate Strategic Finance into their everyday business decision making.

Wine, Wisdom and Stronger Finance. Drink up!

During the preceding From Survival to Prosperity – Strategies for Transition session, (more…)

Small Business Finance Bill passes – So What?

Do you often wonder how this country gets along with the Pollyanna views inside the Beltway, mostly comprised of those who have never had to meet a payroll? The Senate passed the Small Business finance bill last week as a few Republicans crossed the aisle to provide the needed votes. The House is expected to quickly pass this version. More later … but ….

So What? It’s a $30B bill so it sounds like a lot of money … but so did the TARP $750B number when it was announced … and it’s still a long way from fully invested. The NYT claims it will help “credit-starved businesses” … says who? Read Uncertainty is killing business – NOT credit in which I review why credit availability is NOT what’s killing small business. If you’re uncertain about what uncertainty we’re certain about … read the WSJ verbatim quote to be reminded of the painful litany of the economic and regulatory quicksand on the road to recovery.

[pullquote]Are you uncertain about what uncertainty we’re certain about?[/pullquote]

Sure, there may be qualified businesses struggling to get credit. It is tougher out there, the underwriting standards are less flexible … but will the economy recover when credit is extended to small and middle-market businesses? No, (more…)

Business Finance: Vol. 2 – How Do We Do It?

Volume 2 of our Financial Adrenaline series, entitled How Do We Do it?, explains how we begin the process of introducing the powerful principles of Strategic Finance into your business. We expand upon our conversation about the current state of financial reporting and describe our commitment to you that Finance should NOT be the Reason for Business Failure. We offer a series of questions that are crucial to successful businesses but that we don't think you can answer by looking at your traditional financial statements. We also explain why traditional financial statements are historical renderings of financial transactions but don't lead to the action plans necessary to drive improved business performance.

Business Finance workshop at the Wine Industry Financial Symposium

For at least 18 years, the Wine Industry Symposium Group, an organization of California wine industry professionals, has held the Wine Industry Financial Symposium to “develop a communications bridge to the financial community.”

This year, I will be conducting a 90 minute workshop to help companies in the wine industry revitalize their free cash flow. Here’s the exact title of the workshop scheduled for Monday, September 20, 2010 at 3:30 p.m. You can find the program and registration details here.

PRACTICAL STRATEGIES TO IMPROVE CASH FLOW

Cash Flow has never been more critical as we face a clouded andunpredictable business landscape. Learn about the power of Strategic Finance and how you can extract cash from your operations and pour the juice into your bank account.

For the wine industry, this event is the kickoff for our Financial Adrenaline series, (more…)