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Business Tools Blog

Why College Football Should be Abolished - a writing lesson for 1950s college students

July 23, 2008 – 12:35 am

Dosh Dosh posted a story - How to Say Nothing in 500 words.   The story was linked to what I would call a historical writing lesson from Paul McHenry Roberts who taught college English for over twenty years.

The lesson from Paul McHenry Roberts is summarized below - I took the liberty of adding a few words in parenthesis after his lesson (below) to summarize his key points.

It’s Friday afternoon. and you have almost survived another week of classes. You are just looking forward dreamily to the weekend when the English instructor says: “For Monday you will turn in a five hundred-word composition on college football.”

Well, that puts a good hole in the weekend. You don’t have any strong views on college football one way or the other. You get rather excited during the season and go to all the home games and find it rather more fun than not. On the other hand, the class has been reading Robert Hutchins in the anthology and perhaps Shaw’s “Eighty-Yard Run,” and from the class discussion you have got the idea that the instructor thinks college football is for the birds. You are no fool. You can figure out what side to take.

After dinner you get out the portable typewriter that you got for high school graduation. You might as well get it over with and enjoy Saturday and Sunday. Five hundred words is about two double-spaced pages with normal margins. You put in a sheet of paper, think up a title, and you’re off:

WHY COLLEGE FOOTBALL SHOULD BE ABOLISHED

College football should be abolished because it’s bad for the school and also for the players. The players are so busy practicing that they don’t have any time for their studies.

This, you feel, is a mighty good start. The only trouble is that it’s only thirty-two words. You still have four hundred and sixty-eight to go, and you’ve pretty well exhausted the subject. It comes to you that you do your best thinking in the morning, so you put away the typewriter and go to the movies. But the next morning you have to do your washing and some math problems, and in the afternoon you go to the game. The English instructor turns up too, and you wonder if you’ve taken the right side after all. Saturday night you have a date, and Sunday morning you have to go to church. (You can’t let English assignments interfere with your religion.) What with one thing and another, it’s ten o’clock Sunday night before you get out the typewriter again. You make a pot of coffee and start to fill out your views on college football. Put a little meat on the bones.

Long story short, the student writes a horrific essay and gets a “D“.  Mr. Roberts uses this essay to teach  how to be concrete; get to the point; and use color to express point of view.

9 lessons:

  1. AVOID OBVIOUS CONTENT (Summarize conventional points before going on to your own)
  2. TAKE THE LESS USUAL SIDE (It’s almost always easier to write interestingly on the unusual side)
  3. SLIP OUT OF ABSTRACTION (Use concrete examples, not abstract statements)
  4. GET RID OF OBVIOUS PADDING (Eliminate words that don’t add additional illustrative meaning)
  5. CALL A FOOL A FOOL (don’t hedge or use IMHO)
  6. BEWARE OF PAT EXPRESSIONS (avoid phrases like “other things being equal” that don’t add meaning)
  7. COLORFUL WORDS (use but don’t overuse adjectives to add meaning)
  8. COLORED WORDS (watch out for loaded words that might convey contempt on the part of the writer)
  9. COLORLESS WORDS (avoid words like “nice” that aren’t capable of adding much to a description)

At least for business writing, I think Mr. Roberts missed a key lesson …

Make sure that you have a clear understanding of your topic before you write.

Example, if you missed your forecast by $100K because you were surprised by an accounting adjustment.  You should know the following before you write about it.

  • What was the accounting adjustment?  Why was it made or reversed this month?
  • Why were you surprised?  (These things don’t just happen, accountants aren’t a wild and crazy bunch)
  • Does this explain the entire $100K variance?

Your summary (which may be in an email to your boss or a PowerPoint slide for management) should answer the above bullet points in 2 sentences or less.   If you write, “$100K variance due to accounting adjustment.”  then you, like Paul’s student should expect a “D.”   If you write, “$90K variance from accrual necessary to accurately reflect the “Paid Time Off” liability (under accrued due to inaccurate understanding of hire dates).  $10K variance due to one time recruiting cost.”  You get an “A“.

You may add additional paragraphs below the summary that describe what happened in greater detail.

Recognize that writing an extremely concise summary in a few words requires that you have a very clear understanding of the topic.   Also know that if you can’t explain an event concisely, your boss probably knows that you don’t have a clear understanding of the issue.

Sandi Mays | Management | Comments (1)

Cash Flow Statement - a simple explanation

July 22, 2008 – 12:32 am

Jerry Maguire and Rod Tidwell understood the importance of cash flow.

Jerry Maguire: Yeah, what can I do for you, Rod? You just tell me what can I do for you?
Rod Tidwell: It’s something very personal, a very important thing. Hell! It’s a family motto. Are you ready Jerry? I wanna make sure you’re ready, brother. Here it is: Show me the money. SHOW! ME! THE! MONEY! Jerry, it is such a pleasure to say that! Say it with me one time, Jerry.
Jerry Maguire: Show you the money.
Rod Tidwell: No, no. You can do better than that! I want you to say it brother with meaning! Hey, I got Bob Sugar on the other line I bet you he can say it!
Jerry Maguire: Ye, ye, no, no, no. Show you the money.
Rod Tidwell: No! Not show you! Show me the money!
Jerry Maguire: Show me the money!
Rod Tidwell: Yeah! Louder!
Jerry Maguire: Show me the money!
Rod Tidwell: I need to feel you Jerry!
Jerry Maguire: Show me the money! Show me the money!

————————————————

A cash flow statement measures the cash flow from operations, investing and financing.  No new concepts are introduced in the cash flow statement.  Each line is either pulled directly from the income statement or calculated based on the balance sheet.

The cash flow from Assets is calculated by subtracting this month’s balance from last month’s balance.  For example, you owned $500 of fixed assets last month and purchased an additional $100 of fixed assets this month.   This month’s fixed asset balance is $500+$100= $600.  The cash flow calculation is $500-$600=-$100.  Your cash went down by $100 between last month and this month.

The cash flow from Liabilities is calculated by subtracting last month’s balance from this month’s balance. (the opposite of the calculation for Assets)  For example, your A/P last month was $200, at the end of this month your A/P was $300. The cash flow calculation is $300-$200=$100.  Your cash increased by $100 between last month and this month.

The following example show’s each calculation on the cash flow statement:
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Sandi Mays | Definitions | Comments (0)

Reminder Free Templates Available

July 21, 2008 – 3:18 pm

A reminder, I save Microsoft Excel and PowerPoint templates on Google Groups so that they can be accessed and downloaded for free.  A link to the BusinessToolsBlog Google Group is in the Blogroll, or you can click here:

http://groups.google.com/group/Businesstoolsblog

Why start from scratch if you don’t have too :)

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Sandi Mays | Freebies | Comments (0)

Working Capital - a simple explanation

July 21, 2008 – 12:54 am

Now that you know how the balance sheet works, you can calculate Working Capital.

Why would you want to?

Working Capital shows the financial liquidity of a company. It tells you what would be left if a company raised all of its short term assets, and used them to pay off all short term liabilities. The more working capital a company has, the less financial strain a company experiences. Working capital shows if the company has the resources necessary to expand internally or if it will have to turn to a bank and take on debt.

The formula is:

Current Assets - Current Liabilities = Working Capital

If we use the Balance Sheet Example from Friday:

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Using the example above:

Working Capital = 235 - 285 = -50

This example shows a company that is in need of some help to cover working capital needs ASAP.

What if a company didn’t use the balance sheet or only looked at a balance sheet once or twice a year? Would it be too late before you figured out that you were about to have a cash crisis? I’ve heard CPA’s say that balance sheets shouldn’t be forecasted or that balance sheets just happen.  Don’t laugh, there are a lot of finance folks out there that think forecasting an income statement is enough … some think a quarterly forecast of an income statement is enough.

Instead, I subscribe to Caruso’s Predicting Cash Flows: The Foundation of an Exceptional Company theory.

I feel so strongly about this point that I make it a centerpiece of every company I am involved with. We will be better at predicting cash flows than any company out there, whether in our industry or not. We will do this not just to be better than our competitors, as this is too low a bar in my mind. Our goal is to earn exceptional returns for our investors. Knowing everything we can know about our future cash flows is the foundation for doing this.

Sandi Mays | Financial Management | Comments (0)

Let the Games Begin

July 20, 2008 – 12:58 am

I just read an interesting post from Defense Tech.

China Threatens Olympic Cyber Attacks

Click on the link to the article above for full content, in short, the article says:

Chinese officials publicly stated they will “punish” Internet Web sites, Re-broadcasters and other “new media” that replay the 2008 Olympic Games and related events without the authorization of state-run China Central Television.

I can’t read Chinese, but I used Google translator to read the original Chinese statement:

Original Chinese text:

《通知》指出，通过互联网和移动平台非法转播奥运赛事及相关活动的行为，将纳入国家版权局、公安部、工业和信息化部共同开展的“2008年打击网络侵权盗版专项行动”，对未经许可转播奥运赛事及相关活动的互联网和移动平台，将依法严厉查处。

“Copyright Bureau, Ministry of Public Security, Ministry of Information Industry and jointly launched the “2008 Network to combat piracy, the special action”, not The broadcast license Olympic competitions and activities related to the Internet and mobile platforms will be severely punished according to law.”

While I am all for a good headline, China’s statement looks a lot more like the FBI warning I get before I watch movies on DVD, than the threat purported on Defense Tech’s site.  My take away from China’s statement is that they will enforce their copyright law.

I DON’T think they are saying … rebroadcast the Olympics without our permission and neither you nor your site will ever be seen again.  But just in case China is saying that … I want it on the record, that this site will not be rebroadcasting the Olympics in any way, shape or form.

I am very interested in how China will enforce their copyright.  In a digital age, sharing information is very easy to do, and very hard to stop.  How many videos do you think will be published on YouTube?

In case you were wondering - YouTube lays out the consequences (nope they don’t threaten to make you, your website, or even your YouTube account disapear).

“Anytime YouTube becomes aware that a video or any part of a video on our site infringes the copyrights of a third party, we will take it down from the site. We are required to do so by law. If you believe that a video on the site infringes your copyright, send us a copyright notice and we will take it down. If you believe that we have removed a video that you uploaded in error and that you are the copyright owner or have permission, you can file a counter notice and let us know. Accounts determined to be repeat infringers may be subject to termination. Users with suspended or terminated accounts are prohibited from creating new accounts or accessing YouTube’s community features.”

Heads up China. Reporting to YouTube does require a few bureacratic steps.  You might want to open an account now, just so you are ready.  You will need to send written notice or submit your complaint online.  Youtube does not provide an SLA (service level agreement) on how quickly they will process your complaint.

DMCA Complaints
YouTube, Inc.
901 Cherry Ave.
Second Floor
San Bruno, CA 94066
Fax: 650.872.8513
Email: copyright@youtube.com

To expedite our ability to process your request, complaints may now also be submitted online at http://www.youtube.com/copyright_complaint_form. You will need a YouTube account in order to utilize this tool.

Sandi Mays | Financial Management | Comments (0)

Azerbaijan Anyone?

July 19, 2008 – 12:18 am

This absurd quote has made it’s way into my home, via my 15 year old daughter.

“It is on! It is on like the former Soviet Republic of Azerbaijan”

For a minute, I thought she was really smart and had read a book or done some research on Azerbaijan. Alas, no. She got this quote from “How I met Your Mother, Best Prom Ever, Episode Number: 20, Season Num: 1″

I do have to give her credit for funny!  Definitely better than … “do it up” or “I am so on it”

Sandi Mays | Financial Management | Comments (0)

Balance Sheet - a simple explanation

July 18, 2008 – 12:30 am

PhotobucketIn A Few Good Men

Kaffee says, “I want the truth!”
Col. Jessep shouts, “You can’t handle the truth!”

If Kaffee and Jessep were accountants rather than United States Marines, they might have been talking about the company’s balance sheet.

A balance sheet is used to measure a company’s financial health and net worth.  The truth is in the numbers.  What is the cash forecast? How much do our customer’s owe us?  How much do we owe vendors?  Do we have enough accruals to cover noncollectable customer accounts?   Do we have the right level of accruals for expenses that we owe, but haven’t paid?  How much have we invested in the company?  How much to be owe our lenders?

If we have been over accruing expenses like NetEx or Bad Debt,  we would make an adjusting entry that would reduce the accrual and reduce the expenses on the Income Statement - the result would improve EBITDA.  If we were under accruing expenses, we would make an adjusting entry that would increase the accrual and increase expenses on the Income Statement - the result would negatively impact EBITDA.

We are bonused based on EBITDA performance, therefore, we need to keep balance sheet accruals accurate. Our accounting team relies on accurate vendor contract information and timely invoice processing to keep a correct balance sheet.  It’s up to every individual in the company to communicate with accounting when expenses have been incurred, when contracts have been executed or terminated,  and when invoices are being disputed.

It would be terrible to miss a bonus target, because accounting was accruing inaccurately for expenses on a contract that was terminated or an invoice that was being rightfully disputed.

The formula used to calculate a balance sheet is:

assets = liabilities + shareholders’ equity

Assets are anything owned by the company that has value.  Liabilities are the claims of creditors against the assets of the business.

A balance sheet looks like this: With a correction from Nicole Dubbelde (thanks Nicole)

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By definition (L) Total Assets and (Y) Total Liabilities & Equity equal each other.  The following define the terms used in the balance sheet.   Refer to this earlier post for additional financial definitions that we use at Zayo if you need more financial definitions.

Cash: money available immediately, such as in checking accounts

Accounts Receivable: cash owed to the company for invoiced revenue

Inventory: raw materials, work-in-progress and the company’s finished product

Prepaids: items that you pay for in advance, like insurance premiums or software license agreements, where you might pay in advance every 6 or 12 months

Other Current Assets: other assets that can be easily converted into cash within one calendar year

Fixed Assets: land, buildings, machinery, equipment, and vehicles

Accumulated Depreciation: reduction of the value of the assets on the balance sheet to reflect the loss of value due to wear, tear, and usage

Goodwill: premium over book value a company pays during an acquisition

Other Assets: assets that don’t fit into the current or fixed asset categories. They include things like prepaid expenses that won’t be converted to cash during the current business year

Accounts Payable: short-term obligations owed by the company to creditors, suppliers, and other vendors. Accounts payable can include supplies and materials acquired on credit

Accrued Expenses: expense recognized on the income statement before it is paid for. Examples include accrued wages, interest and taxes. Even though they are to be paid at some future date, they are shown on the income statement in the month they expense was incurred and they accumulate on the balance sheet until the company cuts a check to pay for them

Deferred Revenue: cash that is collected for revenue prior to it being recognized as revenue on the income statement. Ex. Company ABC, pays Zayo $240 to install a DS1. Company ABC’s contract with Zayo is for 24 months. Each month that the service is active, Zayo will recognize $10 of revenue on the income statement, until the entire $240 has been recognized. The portion of the $240 that has not been recognized on the income statement remains on the balance sheet as deferred revenue

Other Current Liabilities: other short term obligations that are not A/P, Accrued Expenses or Deferred Revenue. These could be short term notes payable or commercial paper

Debt: debt obligations owed by the business that are due more than one year out from the current date

Capital Leases: treated as both a debt and the acquisition of an fixed asset to be depreciated; thus the lease is recorded on the lessee’s balance sheet as an asset and corresponding liability (lease payable)

Other Liabilities: liabilities that don’t fit into the current or debt categories

Equity: amount of capital the owners have invested in the company

Retained Earnings: earnings reinvested in the business after the deduction of any distributions to shareholders, such as dividend payments

Sandi Mays | Definitions | Comments (0)

P&L or Income Statement - simple user’s guide

July 17, 2008 – 12:25 am

In Less is More How Great Companies Improve Productivity Without Layoffs,  Jason Jennings writes:

Productive companies are open with their numbers, and they score everything that’s important.

In most businesses, numbers are still provided to people on a need-to-know basis. The sales manager knows the sales target, the production manager knows the costs of all components that go into creating whatever they do and the office manager knows the cost of overhead. Then all the various departmental numbers are entered, digested and split forth from the desktop of the CFO, who following some top secret mumbo jumbo, nervously clutches the bottom line number to his chest and hesitating delivers it to the top dog who sits in his office and always growls, “Nope, not good enough.”

… Conventional wisdom says the worker bees can’t know how much money the business really makes because if they did, they’d all want a raise. “And besides,” choke the practitioners of medieval management, “the other reason people can’t have the numbers is they won’t understand them anyway.”

“That thinking is stupid,” retorts Jack Stack of SRC, “You can only build a productive enterprise when everyone thinks like an owner. How can you ask people to think like owners if they don’t know the numbers?”

Dan Caruso prophesizes about  Empowerment and Accountability at Zayo.

Accountability, specifically around P&L, will be vastly improved. We will have three groups maintaining their own financials all the way to down to the balance sheet and cash flow level. This might sound fairly basic, but for reasons I will explain in the next blog entry, this is a big deal in the telecom industry.

My guess is that people at all levels of our organization will experience something they haven’t had in a long time in their career, if ever. They will feel empowered. They will be energized. They will feel invigorated.

On a daily basis, employees will see an increasingly direct relationship between what they are doing and how it is impacting our bottom line. Capital decisions will center more on how expenditures will really impact cash flows—and less around how to dress up a business plan to convince corporate to approve. Expenses will be scrutinized—are they really essential for us to win business and provide great service to our customers? Winning and retaining business will feel more important than ever—with a more direct relationship between revenue and cost, every dollar of revenue will matter a ton more.

Though feelings of discomfort are inevitable, I believe most people will respond well to more clearly defined financial accountability. I guess we will see.

_____________________________________________

Financial Statements can be intimidating, especially if you weren’t a fan of accounting or math in high school and college.  The good news is that financial statements are basic addition and subtraction.  There aren’t many fancy formulas … so once you are familiar with the format and definitions, you will be ready to fulfill Dan Caruso’s prophesy and feel empowered, energized and invigorated.  I promise!

Over the next few days, I will show the the anatomy of an income statement (I/S), balance sheet (B/S) and cash flow statement (C/F).  At Zayo, we forecast the I/S, B/S, C/F showing 2 quarters of history and a 4 quarters of forecast.

The income statement in all it’s simplicity is shown below:

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The following define the terms used in the income statement.   Refer to this earlier post for additional financial definitions that we use at Zayo.

Financial Statement Revenue: is Billable Run Rate at the beginning of the month +/- pro-rates, plus backbills, less credits, less revenue reserves, plus regulated revenue, plus usage revenue, plus termination revenue, plus amortized installs, plus amortized IRU’s, plus construction revenue +/- other adjustments

Network Expense: network costs directly associated with billed revenue. These include third party offnet circuit charges, IRU costs, Colocation Rents, Switch Rents, and Fiber Leases.

Gross Margin: Revenue less Network Expense

SG&A: Selling, General and Administrative Expenses. SG&A is broken into (1) Personnel and Contractor Expense, (2) Network Operations Expense (3) Other SG&A

EBITDA: Gross Margin less SG&A

Depreciation: A noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence.  Because it is a non-cash expense, depreciation lowers the company’s reported earnings while increasing free cash flow

Amortization: Writing off an intangible asset investment over the projected life of the assets; or the gradual elimination of a liability, such as a mortgage, in regular payments over a specified period of time.  Because it is a non-cash expense, amortization lowers the company’s reported earnings while increasing free cash flow

EBIT: EBITDA less Depreciation and Amortization

Interest: Expense for interest on a loan

Income Tax: Expense for tax on the company’s net profit

Net Income: EBIT less Interest and Income Tax

Sandi Mays | Definitions | Comments (0)

Debits and Credits - Accounting 101

July 16, 2008 – 12:27 am

I saw a “Post It” thumb tacked to the wall of a cube … right next to another “Post It” that had Tim Gentry’s - Zayo’s Controller’s - phone number on it.

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Debits and credits are exciting! Just ask Manpower.  They are offering an Exciting Accounts Receivable Clerk Opportunity

Duties include but are not limited to: identifying problems in administrative processes and recommend improvements or changes thereof; requesting client code set-up and changes; perform and assist in inventory count reconciliation; ensure that all dispatched jobs are accounted for and are invoiced; verify 3rd party cost vs. reimbursable revenue; verify existence of blocked billing documents; verify existence of Billing Due List and Delivery Due List; request offset clearing of accounts receivable debits and credits; and verify a Net Revenue Billing Report for abnormal PCPR ratio’s.

You may not be qualified for Manpower’s opportunity,  but understanding accounting basics is important to creating value.  Bonuses are based on Revenue, Operating Cash Flow and/or EBITDA targets.  It’s easier to impact these numbers if you understand how they come together.  Over the next few days, I will post blogs that explain how Income Statement, Balance Sheet and Cash Flow statement work.

And … in case you ever need to know:

  • A debit is a an increase in assets or a decrease in liabilities.
  • A credit is a decrease in assets or an increase in liabilities.

Just like the Post It said, when a customer payment is received you increase or debit the cash asset and decrease or credit A/R (Accounts Receivable) asset.  Since both Cash and A/R are assets, the change to Net Assets is $0.

Sandi Mays | Definitions | Comments (2)

REPT function to create instant bar chart

July 15, 2008 – 12:13 am

REPT or repeat can save time when typing a large string of numbers. 

Example:

Rather than typing “—————————-”

use the formula =REPT(”-”,20) (formula displays “-” 20 times)

This YouTube clip shows REPT function being used to create an instant bar chart.  It’s a pretty cool idea. Since the repeat function is limited to 32,767 characters, you may need to divide by 100,000 to compare customer revenue.  To compare % you could multiple by 100.  Watch the 1:33 minute video to see how easy REPT is to use.

 

Sandi Mays | Charts and Graphs, Excel | Comments (0)