With this blog we are going to begin a multi-part series in which we explore, explain, and hopefully enlighten our readers about the often-confusing world of financial statements.  We’ll be looking at the three most common statements—the balance sheet, the income statement, and the statement of cash flows—and trying to give you an understanding of how to interpret them and what they are telling you about your business.

Let’s start with the balance sheet, which presents a snapshot of a company’s financial position at a specific moment in time, often on the last day of the month, the quarter or the year.  The left side of the balance sheet lists a company’s assets (i.e. the things that it owns). The right side lists the liabilities and equity, which represent the financial obligations that the company has to others.  Assets are listed in order of liquidity, or the length of time that it takes to convert them into cash, and liabilities are listed in the order in which they must be paid.

Now let’s take a look at this sample balance sheet from the fictitious ABC Corporation and break down each of the items in a little more detail.

We’ll begin with the asset side before moving on to liabilities and equity.

Cash – This one is pretty easy.  In addition to actual bank notes, cash also includes any money that is immediately available, such as funds in a checking account.  Cash is, by definition, the most liquid of all assets.

Accounts receivable – This represents money that is owed to ABC Corp. by its customers.

Inventory – Inventory is the value of the goods that ABC has in its possession but has not yet sold.

Total current assets – Are all assets that can be easily converted into cash within a year.  In ABC’s case its total current assets are the sum of its cash, accounts receivable, and inventory.

Fixed Assets – Fixed assets include things such as buildings, machinery, and office equipment which are necessary to run the business but which are not expected to be converted into cash.

Total Assets – Equals the sum of all of the assets of ABC Corp., in this case the figure adds up to $50,000 and is comprised of $35,000 in current, or short-term, assets and $15,000 in fixed, or long-term assets.

On the right side of the balance sheet we see the following items:

Accounts payable – The opposite of accounts receivable, this figure represents the money that ABC owes to suppliers, vendors, and other creditors that is due within a year.

Notes payable – Are loans that must be repaid within a year.

Accrued payroll – Is money that is owed to employees. Because ABC, like most companies, does not pay its employees daily it will accrue this liability to its employees between paydays.

Total current liabilities – All liabilities that must be paid within a year, in ABC’s case accounts payable, notes payable, and accrued payroll.

Long-term debt – Is any financial obligation of ABC’s that is due more than one year from the date the balance sheet was prepared.

Total liabilities – Equals total current liabilities plus long-term debt.

Common stock – Represents the value of the stock that has been issued to investors in ABC Corp.

Retained earnings – Are the earnings of ABC that have been reinvested into the business.

Total common equity – Also known as owners’ equity or stockholders’ equity, this figure is the sum of the value of the common stock plus retained earnings.

Total liabilities and equity – Comprises all of the money that ABC owes to others, plus the value of its common stock and retained earnings, in this case $50,000.

While the precise line items on a balance sheet will differ from company to company, the format that we have laid out here will not vary.  And while each company will, of course, have its own unique values for each entry on the balance sheet, one thing that holds true for ABC Corp. holds true for all companies: total assets are equal to total liabilities plus equity.  In our next post we’ll explain why this is so and start a more in-depth explanation of how to read and interpret a balance sheet.

If you are already a successful entrepreneur, you’re a planner. So you’ve already done a lot of thinking about surviving and succeeding in 2012.  How do you plan for your business to survive and succeed in 2012?

At this time last year I told the whole team here at HBS, that I could not argue with the economic facts that point to a massive global economic train-wreck in our future, but I was not convinced that it will happen in 2011, and would not, therefore, use the doom-and-gloom scenario as an excuse to freeze salaries or benefits, as we were forced to do in 2009 when sales fell 25% when the economy “contracted”.

In fact, we had had a good year in 2010 and I wanted to reward each of them, whom I consider my best friends, for their performance, expertise, dedication and customer friendliness, which largely accounted for our success.

So I gave everybody a raise, and told them, if times get tough, we will all be on the same train and we will all ride it uphill and downhill together. And that’s the way it will be.

That’s how I planned to be successful in 2011. It worked. That set the tone for 2011. Instead of concentrating on the negative, like the NEWS did, we all pitched in to make the company and our service more perfect, so we could better serve our current clients and win a greater share of the potential customers out there. We also concentrated on outperforming our competitors in terms of the client experience by improving on hundreds of details on all levels of the business. We weren’t trying to re-invent ourselves, just improve upon what we already do well, to set the bar higher for excellence in our tiny industry of Company Formation Services.

Every year, for 30 years, I’ve done this. I plan for greater success every year by consistently improving every aspect of the company, and getting everyone involved in the details.

We invested in making our information and services available across the whole spectrum of the web including social media, mobile devices and notebooks. We set up an active Facebook page, and a Twitter account, and produced 13 videos to walk clients through every question and quandary when it comes to forming a Delaware LLC or Corporation. We will soon be QR coding your invoices so you can access your account, and pay your Franchise Tax and Registered Agent fee in less than a minute! Poof! If compliance can be made simple, we will make it so simple for you.

If you have a smart phone, try our mobile site. Just go to the same url: www.delawareinc.com and it will recognize your phone and give you the “Wham Bam Thank You Mama” version of our info.

But I have to admit, in 2011, we were very lucky. Despite the economic reality we all faced, more people wanted to form new companies and when we asked them why they wanted to start out fresh at a time like this many of them totally dismissed the notion that times are tough and said, ”because this is THE TIME” for them. And they are right.

I started Harvard Business Services in 1981 when the economy was equally depressed. But the USA is not a depressed nation and we always prevail over economic challenges. Americans love a challenge. Americans love to work and to be the best at what they do. Americans are also innovative, and free to innovate, which is our big advantage.

2012, the election year: What policies will govern the country in 2013 and beyond? The voters will decide that. This year, it is more important than ever, that you VOTE. In the USA, VOTERS determine the future, not the politicians.

What Our Clients Want: When I talk to our clients, nobody cares what the dollar will be worth, or what gold will be worth or what the interest rate will be on treasury bills. Really, they don’t care. Do you?

What people we talk to care about is activity in the marketplace. When are the buyers going to make a comeback and start calling again? Let’s get the phones ringing, let’s get the sales folks showing people properties, let’s get the customers making offers, and deals, and buying things. Let’s get the banks making swift and easy loans again. Let’s get this economy rockin’! That’s what we’re they’re saying.

So, my advice for 2012, which is free advice and worth every penny of what you pay for it, but no more, is to invest in yourself. Invest in your company no matter how small or how large it is. Pour your money back into your own company’s infrastructure and environment and security. Invest in your people. Raise their level of education and their standard of living and challenge them to do more.  And they will. Build an emergency operation center to avoid shutting down if one strikes. Plan for the train wreck, even if it doesn’t happen.

Plan ahead and Go Ahead: By all means, if you’re just starting out, you should know that you’ve picked the very best time in recent history, in my opinion, to start your own company. Survival will determine the fittest but in these uncertain times, start-up companies with dedicated sensible owners often have the advantage over established companies with good balance sheets.

Opportunity is alive and well here in the USA. GO FOR IT! Make 2012 your year to form a company.

Recently, little black and white squares have been popping up everywhere!  These tiny blocks are called QR (quick reference) codes, which can imbed a great deal of information.

QR codes have thousands of uses, and creative business owners are coming up with new ways to use them in marketing their businesses.

QR codes engage customers! Using a smart phone and a free QR Reader app, your customers simply scan the QR code into their phone and it takes you right to the web page you specify. This turns a once-boring print ad into an interactive experience, because the computer-generated codes contain all kinds of information that you specify, including print, pictures, web links, email addresses, Facebook links, coupons, and other promotions.

Many businesses are finding that QR codes offer an effective way of bridging the gap between print and online.  For example, while tried and true business cards still work in paper format, including a QR code on them will provide a quick link to your company’s web site.  Including your company’s QR code in newspaper and magazine ads will expand marketing potential.  QR codes combine offline information to online content, thus linking a multimedia experience to print advertisements.

QR codes are easily scanned by any modern mobile phone.  As smart phones become increasingly more popular, people want faster and more direct lines of communication between products and services they use. Customers using QR codes don’t have to type or remember anything. At this rate, it won’t be long before most people will recognize and use QR codes, so small businesses should consider being ready to take advantage of this emerging and very low cost technology.

We are only scratching the surface of how they can be used, but here are a few ideas to put QR codes to work for your business:

·                  Link to social media tools such as Facebook and Twitter, turning foot traffic into web traffic.

·                  Use QR codes on receipts to send customers to a testimonial page for your business.

·                  In storefront windows – when your business can’t be open 24/7, customers can still access your information and even shop online.

·                  On business cards – help new contacts find your business faster.

·                  Include on product tags and customer feedback forms.

·                  Alternate special offers by linking your QR codes to new or updated landing pages.

·                  Create unique QR codes to include on invoices that take clients to a specific payment page

There are a number of sites for generating QR codes, and they are free.  An internet search for “QR code generator” will offer many choices. There can be a certain amount of fun and surprise with QR codes and with creativity your business may find them a valuable marketing tool.

Are you already using QR codes in your marketing?  If so, feel free to share in the comments how you are using them and the results you are seeing.