Today's the 4th part of a series on understanding financial statements. Today, Jason focuses on cash management and working capital because cash is your lifeblood of a business.

Episode Highlights:

• 03:16: Profits are priority, not the leftovers. You have to have your expenses controlled such that you hit your target profit because all too often most businesses look at profits. They wonder why it doesn't grow, it doesn't grow because you are now focusing on growing the revenue and shrinking the expenses relative to that. 
• 04:09: Jason suggests you should be pulling money into four other accounts that are earmarked for money that is not actually yours. What are those four counts? The first is profit. It is your money down the road. But what they are saying is whether it's once a month or twice a month. Whenever you get paid, you get to move over whatever percentage of profit you're trying to make into that. 
• 05:43: Something is broken with your revenue model, something is broken with your operating with your expenses, but your product, you are going to hit the target profit. You have to make that work. This is a methodology that is also investing called reverse budgeting. You are taking all the savings and investing. In this case the profit off the table. We're also taking it off the fixed expenses.
• 07:31: Jason gives his insights on how much cash needs to be invested in the business in order to make sure you can operate? How do we answer that question? How do we move, modify working capital? Start off with the current assets, consider what's there, Cash is the goal. So short term investments in deposit accounts, financial savings accounts, money market funds, whatever else it is in order to basically help you meet those needs, that's ordered a little bit of interest. That's fine inventory.
• 11:08: Your current portion of your long-term debt and interest payable, is the money that is due in the next 12 months. You can work to minimize that by reducing. You can't work to minimize that by potentially refinancing. If you can stretch out the loans that you were taking out, you can basically reduce that which reduces your need for cash, and you need cash investment.

3 Key Points:

1. Jason explains what basic accounting tells you. It tells you that your revenue minus your expenses equal your profit. 
2. Working capital or net working capital is the difference between your current assets and your current liabilities list, it's a measure of the company's quality and operational efficiency as well.
3. Accounts receivable is the money that's owed to you. The shorter the payment terms on accounts receivable, the faster that money converted to cash, the longer the slower.

Tweetable Quotes:

• "You should have your payroll account. Have a separate bank account just for payroll. You make sure you move the amount for payroll over there every month." - Jason 
• "You don't want a lot of good sitting around. You can make sales, but not so much that you are taking six months to sell it all if it's something small. If it's something big, you may not have a choice, but optimize inventory accounts receivable." – Jason

Resources Mentioned:

Facebook – Jason Pereira's Facebook

LinkedIn – Jason Pereira's LinkedIn

Full Transcript

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Today is the third part of a series that Jason is doing on understanding financial statements. Today, is about accounting ratios. Accounting ratios are used to analyze your business in several different ways. First, it’s helpful to track the performance of your business in multiple different facets, from its solvency to its profitability to its efficiency. It also is a valuable tool if you can combine comparing the help of your business with another business.

Episode Highlights:

• 1.58: Liquidity ratios measure how effectively the company can repay both short- and long-term obligations. The most important ones tend to focus on current long-term liabilities.
• 3.22: When you sell a product from inventory, you sell out a profit that is not reflected on the balance sheet.
• 4.23: The cash ratio carves all current assets except for cash and cash equivalents compared and devised by current liabilities.
• 5.45: The leverage ratios measure the amount of capital that comes in the form of debt. It’s basically how much leverage you are employing in the business relative to some other important metrics.
• 8.28: The debt service coverage ratio looks at your operating income, but it looks like your total debt service, not just the interest but also the principal payments.
• 11.45: Accounts receivable turnover measures how effective you are at collecting your receivables. The bigger the credit sales number and the smaller the average means that you have a very effective means of collecting money as fast as possible.
• 15.00: The EBT margin tells us how much our profit margins were before taxation, which is the metric for how your business will deal.
• 15.48: The net income divided by shareholder’s equity is the return on equity ratio. It is valuable because this tells you what your actual ROI is on the investment made in the business and not given.
• 17.46: The book value per share ratio takes the shareholder’s equity minus preferred equity. This may not apply to private businesses, but in public, it does.
• 19.24: The earnings per share ratio is truly a metric of how much of the business’s profitability belongs to each shareholder. You take the net earnings or net income and divide that by total shares.

3 Key Points:

1. Instead of looking at current liabilities from the lens of your current assets, the operating cash flow ratio looks at operations. It takes your operating cash flow and the cash generated from operations. 
2. The interest coverage ratio measures your interest obligations on all your debt, like your operating income divided by your interest expenses. The interest coverage ratio is an important one in the short run.
3. The gross margin is your gross profit divided by your net sales. Gross profit margin is looking at the direct cost of unit sale like the cost of goods sold, cost of services rendered, whatever that related specifically to that sale.

Tweetable Quotes:

• “The current ratio looks at current assets and divides them by current liabilities. It tells you that you have enough cash and convertible assets in cash.” - Jason
• “The debt-equity ratio is taken from your total liabilities and divided by your shareholder’s equity. This is a metric of how you finance your business essentially.” - Jason
• “In many cases, businesses can rely upon lines of credit that do not require anything much more than interest payments at least every month.” - Jason

Resources Mentioned:

Facebook – Jason Pereira’s Facebook

LinkedIn – Jason Pereira’s LinkedIn

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Today is the second part of the continuation of a series that Jason is doing on understanding financial statements and some of the data. Today, Jason will move on to a couple of other less common reports and is going to look for the cash flow statement; this is not required for tax purposes, but every accounting software should be able to produce one of these. 

Episode Highlights:

• 01:25 A cash flow statement gives you an understanding of what happened to your company’s cash and how you got from the starting position at the beginning of the year to the end position at the end of the year.
• 01:39 There are three different categories or changes within the business that will impact your cash. 
• 02:28 The first area that the cash flow statement looks at is operating cash flow. It is simply a change in your income statement and balance sheet that came from operations. 
• 03:43 If your accounts payable went down, it means you have converted more of your accounts payable to cash. Therefore, you increase your cash and vice versa.
• 04:04 Jason: Any expenses that count payable are positive to your net cash and any reduction is negative, leading to the change in current liability.
• 07:11 If you issue any new debt, that new debt increases the cash on hand that you pay off in long-term debt and the reduction results in a lower amount of cash.
• 09:31 Cash is important because it is the lifeblood of a business. You can be totally profitable with cash being the lifeblood, but you can have negative cash flow. 
• 15:01 You have to be careful with your inventory because if you carry too much, it’s just money waiting to be converted that could be in your pocket, and if you carry too little, you could lose it on sales.
• 16.49 The current liability, like loan payments, you don’t have much control over things. But, again, this is not an area that you are going to be able to reduce because if you have a loan, and you typically have scheduled payments.
• 18:28 COVID has taught us that you need to access the cash when everything goes wrong, but there’s a difference between having cash in the bank and accessing the capital.
• 19.06 If you don’t maintain enough working capital when you sell the business, it will impact your valuation. Working capital is an asset of the business. Too much of it, you can clear that out. Too little of it, you need to invest.

3 Key Points:

1. Cash flow from investing activities reflects any investments you made in your business, specifically your business’s fixed asset component or balance sheet. 
2. Investment in general matters because that investment can either be used for working capital or other business needs, or personal consumption of the business owners.
3. If you could increase the duration of your pay and turn your short-term liabilities into long-term liabilities, you would reduce the need for working capital.

Tweetable Quotes:

• “When you total up all aspects of cash flow, the difference should equal the change in value in your cash balance over the year.” – Jason
• “Having a healthy amount of working capital is vital because you need to keep your business afloat, and there are ways you can optimize around this.” - Jason
• “If we can reduce your pay, current assets, and inventory, you can reduce the need for working capital.” – Jason 

Resources Mentioned:

Facebook – Jason Pereira’s Facebook

LinkedIn – Jason Pereira’s LinkedIn

Transcript

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Jason Pereira reviews financial statements, how to read them properly, & what different terminologies mean. There are all kinds of rules about how depreciation impacts different types of business, and it’s also known as capital cost allowance in Canada.Today, Jason will discuss income statements, balance sheets, cash flow statements, and ratios.

Episode Highlights:

• 01.26: The balance sheet is a document that summarizes everything you own and owe and where the equity came from in the company.
• 01.52: Current assets are liquid assets meant to have a turnover period of less than a year. All assets on balance sheets start with the current assets.  
• 03.20: Fixed assets are the things that are physical products or physical assets. We can have long-term investments in fixed assets things.
• 04.10: Equipment, vehicles, land, and buildings show up as the net number, which is the cost of acquisition minus the depreciation.
• 08.38: Retained earnings are not a number you can draw out of the business unless the assets exist.
• 09.42: Subtracting current assets from current liabilities gives you the net working capital. Net working capital is the amount of money you have invested in the business to keep it going.
• 10.53: The income statement tells you how profitable your business was for the year, and this is where all your sales transactions get summarized.
• 12:51: Subtracting the cost of goods sold or services rendered from the gross revenue gives you what is known as the net revenue or net after your direct expenses.
• 13.10 Fixed expenses are not directly tied to one thing, but it’s paying for the general apparatus of the build of the business to enable you to allow for incremental sales.
• 15.06 Interest is a funding cost based on your capital allocation strategy, and taxes are solely based on your net profit.
• 17.23: Working capital is current assets minus current liabilities, and that is an investment in a firm because you have to have that money in the company. Reducing your need for networking capital increases the amount you can pull out of the business or reinvest in the business.

3 Key Points:

1. Capitalizing on the purchase will reduce the amount that is going to get deducted, it will be reduced to a set amount per year based on one of a couple of schedules.
2. EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) allows you to compare business operations in terms of essentially what their top line is and how much they can convert to their bottom line. 
3. Reducing your need for networking capital, increases the amount you can pull out of the business or reinvest in the business.

Tweetable Quotes:-

• A cash flow is like water. It’s the life of the business, too much cash flow will make you drown, and too little will make you die first.
• Anything that gets spent on the business directly not attributable to unit sales is a general fixed overhead expense.
• Just because you spend the cash doesn’t mean it’s an expense for tax purposes and is a good thing or bad thing that’s debatable.

Resources Mentioned

• Facebook – Jason Pereira’s Facebook
• LinkedIn – Jason Pereira’s LinkedIn

Transcript

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On today’s episode, Jason Pereira will be reviewing the federal budget for 2022, and the reason is that when it came out a couple of days ago, there was a lot to go through. There are 17 key personal, and corporate points that he thinks are worth accounting for. 

Episode Highlights:

• The first big change is the addition of the tax-free first home savings account. This new account will help Canadians over 18 who have not owned a home in the current or last four calendar years. 
• You can also move money from an RRSP to a first home savings account, but you cannot combine this with the existing RRPS first-time home buyer’s plan.
• If you are buying your first home, you were entitled to a tax credit previously that is now increasing, so it used to be 5000, and now it is doubling to 10,000, giving you a total tax credit maximum value of $1500.
• Home accessibility credit has been doubled. It used to be 10,000, but now, it’s 20,000, and this helps pay for renovations and alterations such as wheelchair ramps, walk-in bathtubs, chairlifts, or anything to help you get around the house if you physically need to.
• There is a change in the alternative minimum tax credit. They haven’t announced what it is, but they have started setting the stage for taxing Canadians with the highest income. And to support this, they released a chart that showed that 28% of people earning 400,000 were paying less than 15% in taxes. 
• Previously if you sold an assignment to someone else, GST would typically not apply, but now it does, and in addition to that, it’s not capital gains. It’s fully taxable income.
• There are many changes in corporate taxes, and the most impacted is the small business tax deduction. As a result, Canada’s first half-million in active business income is taxed at the lower small business rate, and then anything interactors taxed at the general rate.
• There are specific credits now available for those who are using carbon capture utilization in storage.
• Critical mining exploration tax credit is basically targeting shares that flow through exploration expenses down into your personal tax rate.

3 Key Points:

1. In the new residential property flipping tax, if you hold a home by home as your principal residence and live in it for less than 12 months before selling it, the principal residence exemption does not apply and qualifies as full income. 
2. Surrogacy is becoming more of a need in Canada. If you are using a surrogate, you will now be able to cover and claim those expenses under the medical tax revenue in Canada.
3. In the intergenerational shares transfers process, they are extending the consultation process to figure out how to fix this and hope to have a report by June 17th.

Tweetable Quotes

• “There is a system in Canada called the alternative minimum tax, which is there to test and prevent people from gaming the system too well.” - Jason 
• “They are going to increase the capital tax from 10 to 15 million, and it will phase it out now over until it is 50 million.” - Jason
• “One of the things that got popular since the small business tax measures of a couple of years ago was what is known as non CCPC planning.” - Jason

Resources Mentioned

• Facebook – Jason Pereira’s Facebook
• LinkedIn – Jason Pereira’s LinkedIn

Full Transcript

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Today’s guest is Anna Malazhavaya, a tax lawyer and Advotax Law Professional Corp founder. Anna is an expert in dealing with problems involving audits. Jason and Anna are going to talk about what it means to go through an audit and what the reality of it is.

Episode Highlights:

·  You don’t need to be doing something wrong to be selected for an audit or free audit to go up really bad.

·  The CRA has upped their game in the last three or four years. They got a lot of money for it, and we see that money working.

·  Typically, in the first step for audit, you will get a brown envelope that nobody likes to receive in their mailbox, and it will identify what they are looking for.

·  Audits start with an auditor’s letter introducing him or herself as telling a taxpayer that they are being audited. This is the period we’re looking at, and these are the questions we will have for you.

·  Many software and resources are available for managing your financial information. Using those, the more prepared you are and the easier it is for you to survive the audit.

·  Communication is key, and auditors have a lot of power. We get to dispute their decision later, but it’s going to cost you a lot of time and money, and it’s not fun to do.

·  If you did something wrong, you’re accountable. But auditors not going to be a big brother on every transaction we ever have because that’s not how they’re supposed to operate.

·  At the end of the day, it’s meant to catch the bad guys, but at the expense of our privacy and expenses, CRA always has an opportunity to start a fishing expedition for every audit they do.

·  Explanatory notes to the new rules say that we have broadened the scope to provide the new realities with the digital world.

·  Auditors used to interview neighbors before in their defense, but the neighbors had the right to say no, we are not interested, and we’re not talking to you.

3 Key Points:

1. Computers don’t know that you are a good and honest person. Computers may pick you up for an audit, and you will be caught, and you will have to go through the not very pleasant exercise together with people who did something wrong.

2. Jason and Anna discuss that are the best practices for surviving an audit, and what other pieces of advice she would give to the listeners.

3. Auditors get to inspect personal documents or documents of any other person if they relate to a targeted person or his tax liability.

Tweetable Quotes

·  “It’s funny the level of disdain and contempt some people have for the nation’s tax authority and thinking that they are not very smart people.” - Jason

·  “There are chances that you may not need to provide everything they ask for, which can help you in the future.” - Anna

·  “I think the audit in the future will be more effective, faster, and more accurate, but it’s going to be invasive.” – Anna

Resources Mentioned

·  Facebook – Jason Pereira’s Facebook

·  LinkedIn – Jason Pereira’s LinkedIn

·  Anna: Website | Linkedin

Full Transcript

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Today, Islamic finance and the challenges it brings to people who follow that faith, particularly business owners, and how those restrictions around Islamic finances can be adapted to many of our current financial structures that are not supportive of it. But there are options, and to discuss that, we have Mohamad Sawwaf, co-founder of a company called Manzil. 

Episode Highlights:

• 02.00: Islamic finance is finance before interest, and that is the difference in terms of what we see today. Islamic finance’s main principle is that money has no value, says Sawwaf.
• 04.25: Jason says that as a Muslim, you can’t borrow, and that is incredibly restrictive from a business owner’s standpoint. He asks, about the other means for accessing capital to buy homes or even start your own business?
• 12.21: Mohammad says that they are starting to see a real growth spurt in the Islamic Fintech space regarding innovative solutions, especially in the digital area that allows financial transactions to be much more simplified and accessible.
• 13.32: When you consider diversifying your investments as a Muslim investor, especially when it comes to the fixed income market, Islamic bonds are available, and they are called Sukuk, says Sawwaf.
• 15.37: Jason asks what does that look like if any Muslim in Canada, looking for a new business or building a manufacturing plant and wants to do things in a Halala method?
• 22.51: Today’s people are renting and avoiding homeownership because they want to sleep at night peacefully, knowing that their financial affairs are in order from an Islamic perspective, says Sawwaf
• 26.24: Federally, all meat out of New Zealand and Australia are halal because they export more than they consume and export to neighboring countries like Malaysia, Indonesia, and Singapore that require, says Sawwaf.
• 29.08: When you are trying to diversify an economy, and if you want to stick with primary industries, you have to create some specialties, says Sawwaf.
• 31.24: As per Sawwaf, nothing stops us from creating product industries except the capital required to bring it out into the open. There is no shortage of demand for anything.

3 Key Points:

1. Sawwaf says that for inventory financing, as long as there is the element of shared risk in a moment and the asset-backed or asset-based transaction principle is fulfilled, we are good to go.
2. The bigger issue is the infrastructure. It just hasn’t gained mass adoption around the world the way it needs to supplant or replace the needs of the Islamic community, and traditional banking would otherwise provide if they could do it, says Jason.
3. When you look at Census Canada, you see that Muslims have the lowest participation rates of homeownership and capital markets. It is not because of our balance sheet. It is because of a lack of power and rights, says Sawwaf.

Tweetable Quotes

• “Multiple mechanisms allow you to do larger types of transactions, like buying a car or home, all happening under the pretense of Islamic finance.” - Mohamad
• “The halal meat industry is a $2 billion industry in Canada that the FDA of Canada entirely regulates.” - Mohamad

Resources

• Facebook – Jason Pereira’s Facebook
• Mohamad Sawwaf: Website 
• LinkedIn – Jason Pereira’s LinkedIn

Transcript

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Jason talks to Robb Engen, the Fee-only Financial Planner and Blogger at Boomer and Echo. Robb is a well-known voice in the Canadian financial blogosphere, and he has run a blog for 11 years and is one of the recognized voices in Canadian online finance.

Episode Highlights:

• 01.35: Robb has run the Boomer and Eco personal finance blog since 2010. About six years ago, he started a fee-only financial planning service to help regular people approach big-burning financial stages of their lives.
• 02.48: Jason asks Robb, as per experience as a DIY advocate, what are the common person triggers for someone with a simple situation for the need to seek out advice in the first place? 
• 05.00: According to Robb, there is a bit of inherent bias in the type of people seeking him out because not many people know about fee-only or later fee-for-service financial planning. 
• 07.03: Robb talks about passive investing. He set up his couch potato portfolio seven years ago before these new kinds of solutions came on board, and being aware of the other products on the DIY spectrum is important. 
• 09.07: As per Jason, there is a marketing lesson for any advisor out there, and there is also a marketing lesson for any clients seeking advice and finding someone who speaks an advisor’s language in marketing. 
• 19.43: Putting your message out transparently is important, says Robb.
• 23.00: People lose clients because you didn’t engage the spouse, the spouse that was engaged died, or the other person felt they are not heard, and it is a challenge, says Jason.
• 25.50: Advisors should be transparent about what they are going to be doing with your money so that you can now move on to the other important factors, says Robb.
• 27.33: Fee-only planning is not something you can scale because every situation is different, says Robb.
• 35.35” Robb suggests that at some point in your life, a little voice in your head will go, “Am I doing the right thing?” If that little voice is telling you that maybe it is time to reach out and get the conversation started with an advisor and see where that can add some value for you.

3 Key Points:

1. The larger sums of money could come in a couple of different scenarios. One is someone taking the commuted value of their pension when they leave their work workplace, and another one, like an inheritance or maybe you sold the rental property or your primary residence.
2. Robb answers, what happens if old males don’t have the mental capacity or expire before their partner does? They don’t want their spouse to go and walk into the big bank and hand over investments or portfolios of stocks to the mutual fund portfolio.
3. In the validator model, people do the right things. They want a second set of eyes just to walk them through and make sure there are no holes to poke through the plan. 

Tweetable Quotes

• “Many advisors struggle in explaining their value to clients, and it may be because those aren’t the clients you should be having, and maybe that service doesn’t match up with them.” – Jason
• “Refining who my client is is really important as well.” – Robb
• “Based on US research, 60 to 100 is the range for a number of engagements on a planning level that you can maintain in the course of a year.” – Jason

Resources Mentioned

• Facebook – Jason Pereira’s Facebook
• Robb Engen – Website 
• LinkedIn – Jason Pereira’s LinkedIn

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Jason speaks with David Pullara, a marketing instructor and brand-building expert who's worked with companies like Starbucks, Coca-Cola, and Google.

David Pullara is a senior business leader with over 20 years of diverse experience in marketing strategy, brand management, and product innovation. He's spent 12 years of his career to date working with four world-renowned, consumer-centric, Fortune 500 organizations: Starbucks, Yum! Brands (Pizza Hut), Coca-Cola, and Google. David is recognized as a Chartered Marketer by the Canadian Marketing Association (CMA). He serves as an advisor to two technology start-ups (LeapGrad and Spiffy), an Advisory Council member for the American Marketing Association's Toronto Chapter, and a member of the CMA’s Customer Experience Council. David is currently focused on consulting, advising, teaching and facilitating, speaking, and writing through his work as Principal of dp Ventures. He also serves as a part-time marketing instructor for the SchulichSchool of Business at York University.

David's LinkedIn Profile: www.linkedin.com/in/pullara

David's website: www.davidpullara.com

David's Consulting Services: www.davidpullara.com/consulting

David's Blog: www.dpthoughts.ca

For more resources, full show notes, & transcript.

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Jason talks to Betsy Ehrenberg, the CEO and founder of Legacy Concierge. Legacy Concierge is a service that helps people deal with digital assets after death. This is a newer problem in state planning, but one that cannot be underestimated. 

Episode Highlights:

• 01.00: Betsy talks about how she enjoys talking about how people protect their assets and explain what digital assets are because they are all over the place, and most people are unaware of them. 
• 03.08: The implication of having your digital footprints all-out means that someone can easily impersonate you, and they do it all the time. 
• 04.43: Betsy says that there are other thefts that happen when people are not aware of their digital assets.
• 06.33: As a Google user and as in Facebook user we have to sort of work our way into their applications to figure out where we actually put the email address and name of the person who can access our account, says Betsy.
• 10.06 Betsy says that due to Covid, over 700,000 people have died, and many of them were on LinkedIn. 
• 12.40: There is a disconnect between customer service, the fiduciary, and the family and a major poor part of what our company does is an advocate for the family and when we have winds as we did with Apple with Google and with Facebook, says Betsy.
• 13.35: Betsy says it took Facebook 15 months to release five years’ worth of data of a decedent and deliver it on a flash drive to the family.
• 14.43: Betsy points out that apple assigns a person who they are paying over $100,000 a year to talk to the fiduciary to physically look at documents. 
• 19.42: Jason asks Betsy, “Talk to me about what your service does to solve the problem for people.”
• 24.21: The minute we start a process of locking accounts we have to use the procedures and follow through with them as they were as of date of death, not as they are today, says Betsy.
• 25.00: Betsy explains, we first of all convince companies that this is a problem for them, not for us. They are wasting time and money and they are being cruel. They cannot have people in charge of this process. They must have what is called an API, an interface.

3 Key Points:

1. The digital footprint includes data and documents on your phone on your tablet, under laptop, in your desk, computer and many other computers that are controlled by others. Betsy raises very important concerns, who has access to your digital footprint? 
2. As a person is approaching 70, they should start to create an inventory of what’s important.
3. API interface the companies like legacy concierge, it notifies companies through a piece of software and that piece of software goes into their legacy applications and marks the file is frozen or deleted or transfers the assets from an existing account to another and then report back to us, explains Betsy.

Tweetable Quotes

• “When people are grieving, they want to remember the decedent in positive terms.”- Betsy Ehrenberg 
• “Impersonating is against the law, federal law and state law” - Betsy Ehrenberg
• “In digital asset, Bitcoin is its challenge if you don’t have both the wallet ID and the private key.” – Jason.

Resources Mentioned

• Facebook – Jason Pereira’s Facebook
• Betsy Ehrenberg – LinkedIn | Website
• LinkedIn – Jason Pereira’s LinkedIn

Transcript

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