WEBVTT 1 00:00:00.300 --> 00:00:03.800 September has really been a commercial success with 2 00:00:03.800 --> 00:00:06.600 200 units all now I 3 00:00:06.600 --> 00:00:09.500 want to move forward and I want to develop sales 4 00:00:09.500 --> 00:00:12.200 through a second distribution Channel, which is 5 00:00:12.200 --> 00:00:15.200 going to be B to B. Now. This session about 6 00:00:15.200 --> 00:00:19.100 the month of October is absolutely fundamental for 7 00:00:18.100 --> 00:00:20.000 at least two reasons. 8 00:00:20.600 --> 00:00:23.800 First I'm going to show you why profit and 9 00:00:23.800 --> 00:00:26.300 cash actually diverge. 10 00:00:26.800 --> 00:00:29.800 Second I will introduce you the two 11 00:00:29.800 --> 00:00:32.700 main building blocks out of three of the 12 00:00:32.700 --> 00:00:34.800 working capital requirement. 13 00:00:35.600 --> 00:00:38.900 Let's start with a business development. Again. September 14 00:00:38.900 --> 00:00:41.800 is a success with my e-commerce side. 15 00:00:41.800 --> 00:00:45.300 B2c. I want to develop B2B 16 00:00:44.300 --> 00:00:48.100 and I'm going to visit stores 17 00:00:47.100 --> 00:00:50.400 toy stores so that 18 00:00:50.400 --> 00:00:54.300 I can develop my sales. I have some objectives for 19 00:00:53.300 --> 00:00:57.200 b2c stabilization 200 units 20 00:00:56.200 --> 00:00:59.900 at 30 dollars per unit. But when 21 00:00:59.900 --> 00:01:02.000 I visited the stores, they tell me you know, 22 00:01:02.400 --> 00:01:05.100 what it should be a lower price. Otherwise, we are not 23 00:01:05.100 --> 00:01:09.000 going to be able to make any margin and business practice 24 00:01:08.300 --> 00:01:11.900 is about paying 30 days later. I 25 00:01:11.900 --> 00:01:14.600 accept to try to sell 200 units 26 00:01:14.600 --> 00:01:18.300 at only 25 as opposed to 30 not 27 00:01:17.300 --> 00:01:20.700 immediately paid but paid 30 28 00:01:20.700 --> 00:01:23.800 days later. The supplier keeps on delivering 29 00:01:23.800 --> 00:01:26.300 and he's still paid at the end of the month. 30 00:01:26.300 --> 00:01:27.900 There's absolutely no change. 31 00:01:29.300 --> 00:01:32.800 Now when you build a p&l you understand that profit is there the 32 00:01:32.800 --> 00:01:35.600 p&l is great sales are up. It's no 33 00:01:35.600 --> 00:01:38.900 more 200 times 30. It's 200 times 34 00:01:38.900 --> 00:01:41.600 30 plus 200 times 25. It's 35 00:01:41.600 --> 00:01:42.700 11,000. 36 00:01:43.700 --> 00:01:46.300 What about the cost of sales? Well, if I sell 37 00:01:46.300 --> 00:01:49.800 at 30 or a 25, I still pay 20 so 38 00:01:49.800 --> 00:01:52.500 I buy two hundred plus 39 00:01:52.500 --> 00:01:55.500 two hundred four hundred units at $20. 40 00:01:55.500 --> 00:01:59.000 This is my cost of sales 8,000 the 41 00:01:58.600 --> 00:02:01.500 gross margin is up. I still have 42 00:02:01.500 --> 00:02:05.200 my salary which is sg&a 1,000 43 00:02:04.200 --> 00:02:07.800 and the profit of the period October is 44 00:02:07.800 --> 00:02:10.700 2000. By the way, it's September 45 00:02:10.700 --> 00:02:13.900 plus B2B. Margin B2B. Margin 46 00:02:13.900 --> 00:02:17.300 is five per unit multiplied by 200. The 47 00:02:16.300 --> 00:02:19.600 profit in September was 1,000. The 48 00:02:19.600 --> 00:02:22.300 profit in October is September because I 49 00:02:22.300 --> 00:02:26.800 keep on selling the same number of units b2c +200 50 00:02:25.800 --> 00:02:28.500 B2B units times 51 00:02:28.500 --> 00:02:30.100 unit margin five. 52 00:02:31.300 --> 00:02:33.500 Profit is great. But cash is not. 53 00:02:34.300 --> 00:02:37.400 Because if you look at the cash from sales, of course I sell 54 00:02:37.400 --> 00:02:40.100 for 11,000 but I only have cash 55 00:02:40.100 --> 00:02:43.700 in I only collect the b2c sales 56 00:02:43.700 --> 00:02:46.300 which is 200 times $30 57 00:02:46.300 --> 00:02:49.700 and I don't collect the first door of B2B 58 00:02:49.700 --> 00:02:52.200 sales. So my cash from sales is 59 00:02:52.200 --> 00:02:54.300 limited to 6000. 60 00:02:54.900 --> 00:02:57.200 When the cash out is I have to 61 00:02:57.200 --> 00:03:00.400 pay my supplier, which is 8,000 and I 62 00:03:00.400 --> 00:03:03.500 pay my salary which is 1000. So cash in is 63 00:03:03.500 --> 00:03:06.500 six Cash Out is nine. The net 64 00:03:06.500 --> 00:03:09.200 change in cash is 3,000 and you understand that the cash 65 00:03:09.200 --> 00:03:12.700 at the beginning of the period 11,000 is transform into 66 00:03:12.700 --> 00:03:16.300 cash at the end of the period only 8,000. 67 00:03:16.800 --> 00:03:19.400 So profit is great and cash is 68 00:03:19.400 --> 00:03:22.100 awful. In fact, what is the difference between 69 00:03:22.100 --> 00:03:25.700 profit and cash profit is 2,000 and cash 70 00:03:25.700 --> 00:03:28.400 is minus 3,000. The difference is exactly 71 00:03:28.400 --> 00:03:31.400 5,000 and it is perfectly explained by 72 00:03:31.400 --> 00:03:34.800 the fact that the B2 sales are realized but 73 00:03:34.800 --> 00:03:36.600 not yet collected. 74 00:03:37.300 --> 00:03:41.000 And you understand that there is very often a 75 00:03:40.100 --> 00:03:43.200 time lag between the mama joke account for 76 00:03:43.200 --> 00:03:46.800 the profit and the moment you're going to observe the 77 00:03:46.800 --> 00:03:49.700 actual funds flows. They immediate 78 00:03:49.700 --> 00:03:53.300 question is why not accounting for revenues and 79 00:03:53.300 --> 00:03:56.100 expenses at the same times as a fun 80 00:03:56.100 --> 00:03:59.300 flows in the calculation of the profit. Of course, it 81 00:03:59.300 --> 00:04:02.400 would be much easier and definitely it's a 82 00:04:02.400 --> 00:04:05.900 way self-employed people calculate there result 83 00:04:05.900 --> 00:04:08.400 of the year. The problem is that it gives 84 00:04:08.400 --> 00:04:11.100 a very wrong picture about how the 85 00:04:11.100 --> 00:04:12.600 business is really doing. 86 00:04:13.500 --> 00:04:16.100 You remember that the economic purposes of firm is 87 00:04:16.100 --> 00:04:19.800 to sell goods and services the profit and 88 00:04:19.800 --> 00:04:22.300 loss statement as an objective, which is to calculate which 89 00:04:22.300 --> 00:04:25.600 benefit is generated by all these commercial 90 00:04:25.600 --> 00:04:26.600 transactions. 91 00:04:27.800 --> 00:04:30.800 But it does not mean that revenues and 92 00:04:30.800 --> 00:04:33.600 expenses are going to be cashed in and cashed 93 00:04:33.600 --> 00:04:34.700 out at the same moment. 94 00:04:35.900 --> 00:04:38.100 Another reason why there is 95 00:04:38.100 --> 00:04:42.100 a difference is there is a distinction between an expense 96 00:04:41.100 --> 00:04:44.200 and an investment keep that in mind. 97 00:04:44.200 --> 00:04:47.200 I will elaborate in the third module of the 98 00:04:47.200 --> 00:04:47.600 course. 99 00:04:48.600 --> 00:04:51.600 Now when you calculate the profit each and 100 00:04:51.600 --> 00:04:54.600 every b2c sale is generating a unit margin 101 00:04:54.600 --> 00:04:57.800 of 10 multiplied by 200 is 2000 102 00:04:57.800 --> 00:05:00.400 each and every b2c cell 103 00:05:00.400 --> 00:05:03.900 is generating a unit margin of 5 times 200 is 104 00:05:03.900 --> 00:05:06.600 1,000 The Profit generated by 105 00:05:06.600 --> 00:05:10.400 all. These transactions is 3000. This 106 00:05:09.400 --> 00:05:12.300 is named the gross. Margin. This is 107 00:05:12.300 --> 00:05:15.300 also named the commercial margin and you understand that it is 108 00:05:15.300 --> 00:05:18.700 sales Minus cost of goods sold. 109 00:05:18.700 --> 00:05:21.800 There is a relationship between the costs and 110 00:05:21.800 --> 00:05:25.500 the sales. These are sales related expenses 111 00:05:24.500 --> 00:05:27.200 now to be able to make 112 00:05:27.200 --> 00:05:31.100 all these sales run all these transactions every 113 00:05:30.100 --> 00:05:33.700 time a support activity is needed. This 114 00:05:33.700 --> 00:05:37.100 is more indirect cost famous as 115 00:05:36.100 --> 00:05:40.100 GNA for selling General and administrative 116 00:05:39.100 --> 00:05:42.700 expenses. In this case. It's myself and 117 00:05:42.700 --> 00:05:45.300 I cost 1,000 now 118 00:05:45.300 --> 00:05:48.500 the profit is the gross. Margin the commercial Mar. 119 00:05:48.600 --> 00:05:51.700 Minus all these support on indirect costs 120 00:05:51.700 --> 00:05:53.800 three minus 1 is 2,000. 121 00:05:54.900 --> 00:05:57.400 You understand that intrinsically the 122 00:05:57.400 --> 00:06:00.800 period is profitable why because each and 123 00:06:00.800 --> 00:06:03.600 every transaction and all these transactions 124 00:06:03.600 --> 00:06:07.200 together generated a commercial a gross 125 00:06:06.200 --> 00:06:09.000 margin, which is greater than the cost of 126 00:06:09.200 --> 00:06:10.500 the support activities. 127 00:06:11.700 --> 00:06:15.800 And profit is what remains residual a 128 00:06:15.800 --> 00:06:19.000 residue after having accounted accountant 129 00:06:18.500 --> 00:06:22.300 means taken into account all the 130 00:06:21.300 --> 00:06:24.300 sales and all their sales 131 00:06:24.300 --> 00:06:27.300 related cost which are 132 00:06:27.300 --> 00:06:30.300 direct cause and indirect cost now in 133 00:06:30.300 --> 00:06:33.800 an operating cycle which in my case consists simply 134 00:06:33.800 --> 00:06:36.400 in purchasing in order to be able to sell later. 135 00:06:37.200 --> 00:06:40.600 Fence flows out Tom perelli close to transactions, 136 00:06:40.600 --> 00:06:43.300 but there's no reason why they should always 137 00:06:43.300 --> 00:06:46.800 coincide with their recognition with their 138 00:06:46.800 --> 00:06:47.600 accounting. 139 00:06:48.900 --> 00:06:51.400 For example, the b2c sales 140 00:06:51.400 --> 00:06:55.800 are accounted and cashed in immediately. B2B 141 00:06:54.800 --> 00:06:57.300 cells are accounted today, 142 00:06:57.300 --> 00:07:00.900 but will be cash next month wages and 143 00:07:00.900 --> 00:07:03.100 sarees are paid at the end of the month. There are 144 00:07:03.100 --> 00:07:06.600 other examples for example, the rent of your head office is paid 145 00:07:06.600 --> 00:07:09.300 in advance. The income tax is cashed 146 00:07:09.300 --> 00:07:12.200 out next year because you need to get to the end of 147 00:07:12.200 --> 00:07:15.600 the year in order to be able to candidate the taxable income, 148 00:07:15.400 --> 00:07:18.600 etc. Etc. Now the accounting 149 00:07:18.600 --> 00:07:21.600 challenge number one is on the 150 00:07:21.600 --> 00:07:24.700 one hand. You keep revenues cost and calculate 151 00:07:24.700 --> 00:07:27.500 the profit your account for the profit. This is a p&l. 152 00:07:28.300 --> 00:07:31.700 On the other hand, you have to keep cash accounting cash 153 00:07:31.700 --> 00:07:34.300 in and cash out and the challenge number one 154 00:07:34.300 --> 00:07:37.200 is you have to be able to connect these two. 155 00:07:38.100 --> 00:07:41.500 Now to do that there is a great tool which will Imagine by 156 00:07:41.500 --> 00:07:44.700 the accountants the columns. It's perfectly 157 00:07:44.700 --> 00:07:46.800 illustrated by the pencils box. 158 00:07:47.500 --> 00:07:50.600 Imagine that you have a pencil box in which you have 12 159 00:07:50.600 --> 00:07:53.300 pencils. What was there then you 160 00:07:53.300 --> 00:07:56.900 put 18 pencils in the Box what went 161 00:07:56.900 --> 00:08:00.100 in you have 30 pencils if you 162 00:07:59.100 --> 00:08:02.900 take 17 pencils out. What went 163 00:08:02.900 --> 00:08:05.500 out how many pencils remain in 164 00:08:05.500 --> 00:08:09.200 the Box 13. That's absolutely straightforward an 165 00:08:08.200 --> 00:08:09.800 extremely useful. 166 00:08:10.600 --> 00:08:13.400 If you consider a sales and collection 167 00:08:13.400 --> 00:08:17.000 cash from sales for the period what my 168 00:08:16.500 --> 00:08:19.400 customers owe me at the start at 169 00:08:19.400 --> 00:08:22.200 the beginning of the month plus what I am 170 00:08:22.200 --> 00:08:25.500 selling to them during the period is what they 171 00:08:25.500 --> 00:08:26.300 owe me in total. 172 00:08:27.500 --> 00:08:30.100 Minus what the actually paid me during the 173 00:08:30.100 --> 00:08:33.700 period is what they owe me at the end of the period we 174 00:08:33.700 --> 00:08:36.700 name that accounts receivable which describe 175 00:08:36.700 --> 00:08:39.400 the fact that I actually granted a credit 176 00:08:39.400 --> 00:08:42.800 to my customer left hand side column beginning 177 00:08:42.800 --> 00:08:45.500 of the Period start of the months plus sales and 178 00:08:45.500 --> 00:08:47.500 revenues what they owe me. 179 00:08:48.600 --> 00:08:51.300 Right to the side column what they paid 180 00:08:51.300 --> 00:08:52.700 and what they owe at the end. 181 00:08:53.300 --> 00:08:56.100 Now step one if we want to apply that to the 182 00:08:56.100 --> 00:08:59.800 case at the beginning of the month. They owe 183 00:08:59.800 --> 00:09:03.100 nothing because I have not yet started delayed payment 184 00:09:02.100 --> 00:09:05.900 sales now it is zero. What 185 00:09:05.900 --> 00:09:08.600 do I add? I add the sales 186 00:09:08.600 --> 00:09:11.300 which I generate in October which is 187 00:09:11.300 --> 00:09:13.700 11,000. It is in the p&l. 188 00:09:14.200 --> 00:09:17.800 Now I can calculate in total what my customers 189 00:09:17.800 --> 00:09:20.100 owe me. This is zero beginning of the period plus 190 00:09:20.100 --> 00:09:23.800 11,000. It is 11,000. These are 191 00:09:23.800 --> 00:09:26.300 the potential receipts. Now I have 192 00:09:26.300 --> 00:09:29.500 to take into account the actual receipts at the 193 00:09:29.500 --> 00:09:32.700 end of October my customers still owe 194 00:09:32.700 --> 00:09:36.700 me some money and this is exactly 5,000 then 195 00:09:36.700 --> 00:09:39.800 I deduct from that that I collected 11 196 00:09:39.800 --> 00:09:42.400 minus 5, which is 6,000. 197 00:09:43.300 --> 00:09:46.500 This is one way to look at six but there is another reasoning which 198 00:09:46.500 --> 00:09:49.300 gives exactly the same result. You can 199 00:09:49.300 --> 00:09:53.600 also say that as I collected 6,000 my 200 00:09:52.600 --> 00:09:55.100 clients still owe me 201 00:09:55.100 --> 00:09:58.200 5,000 now based on this 202 00:09:58.200 --> 00:10:00.700 calculations. There will be two allocations. 203 00:10:01.400 --> 00:10:04.400 First Cash in 6,000 it 204 00:10:04.400 --> 00:10:07.500 will stand in a change in cash position. 205 00:10:08.800 --> 00:10:11.800 At the end you remember that my accounts 206 00:10:11.800 --> 00:10:14.400 receivable figure is 5,000. It 207 00:10:14.400 --> 00:10:16.400 will stand in the balance sheet. 208 00:10:17.100 --> 00:10:20.700 This is accounts receivable accounts receivable means that I 209 00:10:20.700 --> 00:10:23.200 have in my hands a receivable which is 210 00:10:23.200 --> 00:10:26.200 generated by business operations. You remember that 211 00:10:26.200 --> 00:10:29.500 on the asset side of the balance sheet. You have all the goods all 212 00:10:29.500 --> 00:10:33.000 the assets owned by the company owned 213 00:10:32.100 --> 00:10:35.300 by The Firm at first there was on 214 00:10:35.300 --> 00:10:38.900 their cash, but now I have a second asset which 215 00:10:38.900 --> 00:10:41.500 is going to be transform into Cash later 216 00:10:41.500 --> 00:10:45.200 and which comes from the business operations this receivable. 217 00:10:44.200 --> 00:10:47.900 I have in my hands accounts receivable. 218 00:10:48.800 --> 00:10:51.400 This was a legal perspective. Now. If you remember the 219 00:10:51.400 --> 00:10:54.300 sources and users of fonts perspective for the 220 00:10:54.300 --> 00:10:57.100 financiers. We are on the uses of 221 00:10:57.100 --> 00:11:00.600 font side of the balance see this receivable is what 222 00:11:00.600 --> 00:11:03.800 I invest to be able to develop my commercial 223 00:11:03.800 --> 00:11:05.900 activity to perspectives. 224 00:11:06.600 --> 00:11:08.600 Now back to changing cash position. 225 00:11:09.500 --> 00:11:13.000 You remember that it was a disaster -3000. 226 00:11:12.500 --> 00:11:15.900 I have a discussion with my supplier. And 227 00:11:15.900 --> 00:11:18.600 this person is very nice person who accepts 228 00:11:18.600 --> 00:11:21.800 to be paid 30 days later for half 229 00:11:21.800 --> 00:11:24.100 50% of the purchases. 230 00:11:25.400 --> 00:11:28.400 Now you understand that after having introduce your cancer receivable. 231 00:11:28.400 --> 00:11:31.500 I'm going to introduce the accounts payable. I don't 232 00:11:31.500 --> 00:11:34.800 give a credit to my customer. I receive 233 00:11:34.800 --> 00:11:38.200 a credit from my supplier same 234 00:11:37.200 --> 00:11:41.000 story and of September how much 235 00:11:40.200 --> 00:11:43.900 money do I own to my suppliers? Nothing because 236 00:11:43.900 --> 00:11:46.600 iPad cash all the purchases in 237 00:11:46.600 --> 00:11:46.900 September? 238 00:11:47.700 --> 00:11:50.800 2nd step in October I buy good 239 00:11:50.800 --> 00:11:53.700 and services puzzles in that case for 240 00:11:53.700 --> 00:11:56.600 8,000. So you understand that as 241 00:11:56.600 --> 00:12:00.400 a some IO. This is a liability. I 242 00:11:59.400 --> 00:12:03.100 am liable to my suppliers I 243 00:12:02.100 --> 00:12:05.300 owe zero beginning of the months 244 00:12:05.300 --> 00:12:08.000 plus 8,000 purchases of the months. 245 00:12:08.600 --> 00:12:11.700 First Step at the end of October I still owe 246 00:12:11.700 --> 00:12:14.200 monitor my suppliers which in that 247 00:12:14.200 --> 00:12:17.600 case is 50% of the month purchases. The 248 00:12:17.600 --> 00:12:20.600 end of the calculation is I disbursed what 249 00:12:20.600 --> 00:12:24.300 was do to my suppliers 8,000 250 00:12:23.300 --> 00:12:26.600 minus what is still new 251 00:12:26.600 --> 00:12:29.600 to the supplier at the end of the month 4,000 and 252 00:12:29.600 --> 00:12:33.200 the difference is 4,000, which is a cash outflow. 253 00:12:34.700 --> 00:12:37.800 Different reasoning same result same as accounts receivable. 254 00:12:37.800 --> 00:12:40.800 You can start with how much cash I spent 255 00:12:40.800 --> 00:12:44.000 I dispersed which is 4,000 as 256 00:12:43.400 --> 00:12:46.400 what is due is eight an iPad 257 00:12:46.400 --> 00:12:49.300 4 what remains is 4 so you 258 00:12:49.300 --> 00:12:52.600 can start with and and get to the outflow or 259 00:12:52.600 --> 00:12:55.400 start with the outflow and get to the end. Of course. It 260 00:12:55.400 --> 00:12:59.100 gives you the same result. Now, how do I allocate 261 00:12:58.100 --> 00:13:01.500 these figures cash out will 262 00:13:01.500 --> 00:13:05.400 be in a change in cash position minus 4000. 263 00:13:06.100 --> 00:13:09.300 And at the end what is due to the supplier 264 00:13:09.300 --> 00:13:12.300 is a liability and it will stand in the 265 00:13:12.300 --> 00:13:15.000 balance sheet, which gives you the picture at the end 266 00:13:15.100 --> 00:13:18.400 of the period This is a liability, which is generated by business 267 00:13:18.400 --> 00:13:20.700 operations. What does it mean liability? 268 00:13:21.600 --> 00:13:24.200 There are two meanings which are quite close to each 269 00:13:24.200 --> 00:13:27.200 other but says a subtle difference between these two, I 270 00:13:27.200 --> 00:13:31.000 will elaborate later. It means what I owe and what 271 00:13:30.200 --> 00:13:33.000 is not yet paid. 272 00:13:34.300 --> 00:13:37.500 Keep that in mind. We'll discuss later two perspectives. Again, 273 00:13:37.500 --> 00:13:40.300 the legal one and the financial one legal one. 274 00:13:40.300 --> 00:13:43.300 This is a liability if I terminate the company, 275 00:13:43.300 --> 00:13:47.100 I sell all the assets then I pair all the liabilities 276 00:13:46.100 --> 00:13:50.000 all the amounts. I'm liable and 277 00:13:49.400 --> 00:13:52.900 what is left is attributed to the shareholders. 278 00:13:52.900 --> 00:13:55.200 This was a legal perspective. Now the 279 00:13:55.200 --> 00:13:57.400 financial perspective is this is a 280 00:13:58.300 --> 00:14:02.100 And it is a resource. Why because my supplier 281 00:14:01.100 --> 00:14:04.600 in that case helps me 282 00:14:04.600 --> 00:14:08.500 in the development of the activity. 283 00:14:07.500 --> 00:14:10.300 They contribute to 284 00:14:10.300 --> 00:14:13.900 the financing of my activities. This is a resource now, 285 00:14:13.900 --> 00:14:16.500 it was Equity at the end of September now, it's 286 00:14:16.500 --> 00:14:19.200 Equity plus liabilities right hand side of 287 00:14:19.200 --> 00:14:22.800 the balance sheet. All the resources available are normally 288 00:14:22.800 --> 00:14:25.200 Equity but also the accounts payable 289 00:14:25.200 --> 00:14:28.300 let's go back to the change in cash position. Now we 290 00:14:28.300 --> 00:14:30.600 have cash from sales 6000. 291 00:14:31.100 --> 00:14:34.700 Pair to suppliers 4,000 my salary 292 00:14:34.700 --> 00:14:37.400 1,000 cash in six cash 293 00:14:37.400 --> 00:14:40.800 out five net change in cash is 1000. 294 00:14:41.300 --> 00:14:44.500 The cash at the beginning of the period was 11,000 at 295 00:14:44.500 --> 00:14:47.700 the end. It is 12,000. Of course, it's much better 296 00:14:47.700 --> 00:14:50.800 than the 8000 we had calculated before. 297 00:14:51.700 --> 00:14:54.500 It comes from the fact that we have accounts receivable. 298 00:14:54.500 --> 00:14:57.500 We've had later by some customers, 299 00:14:57.500 --> 00:15:00.500 but we pay later our supplier 300 00:15:00.500 --> 00:15:03.700 who is helping us in the commercial 301 00:15:03.700 --> 00:15:06.600 development. This is again a resource. 302 00:15:07.200 --> 00:15:11.200 Let's build the asset side of the balance sheet first you 303 00:15:10.200 --> 00:15:13.700 remember that the cash from sales is 304 00:15:13.700 --> 00:15:16.800 the inflow. It is in a cache position. Now, what 305 00:15:16.800 --> 00:15:19.900 about the assets? It's 5,000 when 306 00:15:19.900 --> 00:15:22.200 you build a balance it you have accounts receivable. 307 00:15:22.200 --> 00:15:26.000 It is a receivable in my hands This Is A New Concept which you 308 00:15:25.300 --> 00:15:28.600 can add to the cash 12,000. You 309 00:15:28.600 --> 00:15:31.300 remember 11 plus one and the song 310 00:15:31.300 --> 00:15:34.800 the total assets are 17,000. 311 00:15:35.900 --> 00:15:38.500 Let's go to the equity and liabilities side, 312 00:15:38.500 --> 00:15:41.400 but we first go back to the change in cash position 313 00:15:41.400 --> 00:15:44.800 4000 is cash out. It 314 00:15:44.800 --> 00:15:47.100 is in a change in cash position and at the end 315 00:15:47.100 --> 00:15:51.300 the liability what is due to my suppliers? It's 4,000. 316 00:15:50.300 --> 00:15:53.200 Now. I'm almost ready to 317 00:15:53.200 --> 00:15:56.600 build the equity and liability side of the bouncy, but 318 00:15:56.600 --> 00:15:59.700 I first to make a decision about profit 319 00:15:59.700 --> 00:16:00.400 allocation. 320 00:16:01.400 --> 00:16:05.200 You remember that Equity is a total accumulated shareholders 321 00:16:04.200 --> 00:16:05.600 investment. 322 00:16:06.400 --> 00:16:09.700 The initial capital I roll a shack of 10,000 323 00:16:09.700 --> 00:16:12.300 in September. I generated a profit 324 00:16:12.300 --> 00:16:15.900 and I said, let's be cautious and reinvested 1,000. 325 00:16:16.400 --> 00:16:19.200 Now I make a profit in October as well, which is 326 00:16:19.200 --> 00:16:20.300 2,000. 327 00:16:21.200 --> 00:16:24.400 Then I accumulated these 3,000 of 328 00:16:24.400 --> 00:16:27.600 profit and I decided to reinvest both of 329 00:16:27.600 --> 00:16:30.700 them the contribution of myself 330 00:16:30.700 --> 00:16:33.700 as a shareholder to the final thing is and some 331 00:16:33.700 --> 00:16:34.600 of capital. 332 00:16:35.600 --> 00:16:38.300 Plus not the prophet of the year 333 00:16:38.300 --> 00:16:41.700 not of the prophet of the period but the accumulated and 334 00:16:41.700 --> 00:16:44.200 reinvested profit. This is 335 00:16:44.200 --> 00:16:48.200 3,000 the equity at the end of October is 13,000 336 00:16:47.200 --> 00:16:51.200 and 3,000 is named retained earnings 337 00:16:50.200 --> 00:16:53.400 the earnings which I generated in 338 00:16:53.400 --> 00:16:56.500 the business and I decided as a shareholder 339 00:16:56.500 --> 00:16:58.300 to retain in the company. 340 00:16:59.300 --> 00:17:02.100 Now I am ready to complete the seventh part of 341 00:17:02.100 --> 00:17:05.100 the balance sheet equity and liabilities capital is still 342 00:17:05.100 --> 00:17:08.400 10,000 retain earnings is at the 343 00:17:08.400 --> 00:17:12.600 end of September plus the actual October Prophet 344 00:17:11.600 --> 00:17:14.700 3,000 shareholders equities 345 00:17:14.700 --> 00:17:17.800 13,000 casparable you 346 00:17:17.800 --> 00:17:20.600 remember this is a New Concept 4,000 and 347 00:17:20.600 --> 00:17:24.400 equity and liabilities is 17,000. And 348 00:17:24.400 --> 00:17:27.900 this is absolutely great. Why because my 349 00:17:27.900 --> 00:17:31.100 balance it is balancing This 350 00:17:30.100 --> 00:17:33.300 Is Not Great. This is 351 00:17:33.300 --> 00:17:36.300 simply mechanical each and 352 00:17:36.300 --> 00:17:39.300 every time in the course up through the end. I 353 00:17:39.300 --> 00:17:42.400 build the balance it will make any Kelly 354 00:17:42.400 --> 00:17:46.200 balance in the wrap up at the end of this first module. 355 00:17:45.200 --> 00:17:48.600 I will explain you why the 356 00:17:48.600 --> 00:17:51.400 working capital requirement pleasure role 357 00:17:51.400 --> 00:17:53.400 in this mechanical balance. 358 00:17:54.400 --> 00:17:57.500 Now I suggest you make an exercise which is you 359 00:17:57.500 --> 00:18:01.200 take the same spreadsheet. Now. You open the tab, October your 360 00:18:00.200 --> 00:18:02.100 one. 361 00:18:02.900 --> 00:18:05.600 The questions are what happens if you 362 00:18:05.600 --> 00:18:08.600 buy and sell 400 units 363 00:18:08.600 --> 00:18:11.900 of b2c instead of 200 and 200 364 00:18:11.900 --> 00:18:14.400 units of B2B, which was the initial 365 00:18:14.400 --> 00:18:18.400 case second question the opposite 200 units 366 00:18:18.400 --> 00:18:22.000 of b2c. What was anticipated and 400 units 367 00:18:21.200 --> 00:18:24.600 of B2B, which is better than 368 00:18:24.600 --> 00:18:27.700 anticipated. Let's start with 400 and 369 00:18:27.700 --> 00:18:30.400 200 a cash receive all is 370 00:18:30.400 --> 00:18:33.600 the same why because it's additional sales 371 00:18:33.600 --> 00:18:35.400 which are immediately collect. 372 00:18:36.400 --> 00:18:39.100 I calculate my cash position which is going to 373 00:18:39.100 --> 00:18:42.700 be 4,000 more than the 12,000. I 374 00:18:42.700 --> 00:18:43.600 will explain you in a minute. 375 00:18:44.500 --> 00:18:47.400 Shareholders Equity is incremented by the 376 00:18:47.400 --> 00:18:50.200 incremental profit and accounts payable is 377 00:18:50.200 --> 00:18:54.000 up You observe that the balance it is balancing. 378 00:18:55.400 --> 00:18:58.400 Now, let's go back to each and every item they are 379 00:18:58.400 --> 00:19:01.600 additional purchases instead of purchasing 380 00:19:01.600 --> 00:19:04.400 400 that's purchase 600 units. So it's 381 00:19:04.400 --> 00:19:08.500 an additional 200 units at 4,000 you 382 00:19:08.500 --> 00:19:11.200 remember that 50% of purchases are 383 00:19:11.200 --> 00:19:15.200 paired with a one month DeLay So if I increment my 384 00:19:14.200 --> 00:19:17.100 purchases by 4,000 I 385 00:19:17.100 --> 00:19:20.200 increment the accounts payable by 50% of that which 386 00:19:20.200 --> 00:19:23.500 is 2,000. This is white by 2,000 387 00:19:23.500 --> 00:19:26.900 now the b2c activities generating an incremental and 388 00:19:26.900 --> 00:19:27.900 additional profit. 389 00:19:28.600 --> 00:19:31.700 I generated more sales by 200 multiplied 390 00:19:31.700 --> 00:19:34.000 by unit. Margin, which is 10 dollars per 391 00:19:34.300 --> 00:19:37.900 unit the multiplication of one by the other gives 2,000. 392 00:19:38.500 --> 00:19:42.300 Now you understand that additional profit 2000 additional 393 00:19:41.300 --> 00:19:44.300 accounts payable 2000 equity and 394 00:19:44.300 --> 00:19:48.100 liabilities are by 4,000 accounts receivable 395 00:19:47.100 --> 00:19:51.200 is the same now. What about cash now? 396 00:19:50.200 --> 00:19:53.100 What is a cash consequence? 397 00:19:53.800 --> 00:19:57.400 Selling an additional 200 units b2c 398 00:19:56.400 --> 00:19:59.600 revenues immediately paid 399 00:19:59.600 --> 00:20:02.400 200 times 30. It's plus 400 00:20:02.400 --> 00:20:03.500 6000. 401 00:20:03.900 --> 00:20:06.900 Purchases 4,000 only 402 00:20:06.900 --> 00:20:09.300 50% iPad immediately so 403 00:20:09.300 --> 00:20:13.200 I cash out 2000 out of the 4000. 404 00:20:13.900 --> 00:20:17.400 Impact on the cash position plus 6000 minus 405 00:20:16.400 --> 00:20:20.100 2,000 plus 4000 and 406 00:20:19.100 --> 00:20:22.800 you understand that the Bounty is nicely and 407 00:20:22.800 --> 00:20:24.100 beautifully balancing. 408 00:20:24.900 --> 00:20:28.300 If it is the other way around 200 b2c, 409 00:20:27.300 --> 00:20:30.800 but 400 B2B then 410 00:20:30.800 --> 00:20:33.500 the accounts receive all is going to be dramatically up. 411 00:20:33.500 --> 00:20:36.700 Why because all these incremental B2B cells 412 00:20:36.700 --> 00:20:39.500 are going to be bad with the delay a cancer. Symbol is 413 00:20:39.500 --> 00:20:41.300 not five. It's 10,000. 414 00:20:41.900 --> 00:20:44.600 The prophet is up but is a buy 415 00:20:44.600 --> 00:20:47.100 only 1,000 which is 200 units times 416 00:20:47.100 --> 00:20:50.600 five and a cash payable is a 417 00:20:50.600 --> 00:20:53.600 by 2000 no change because I 418 00:20:53.600 --> 00:20:56.300 purchase more an iPad with a one 419 00:20:56.300 --> 00:20:59.600 month delay for 50% of the purchases. What is 420 00:20:59.600 --> 00:21:01.000 interesting to observe the 421 00:21:03.400 --> 00:21:04.100 cat you remember 422 00:21:05.100 --> 00:21:05.500 I selling. 423 00:21:07.500 --> 00:21:08.600 more act darn 424 00:21:09.200 --> 00:21:12.800 The only impact is in terms of cash Outlet 425 00:21:12.800 --> 00:21:15.500 what I have immediately to pay to 426 00:21:15.500 --> 00:21:18.500 my supplier to be able to generate these additional 427 00:21:18.500 --> 00:21:19.900 B2B sales. 428 00:21:20.500 --> 00:21:23.400 And in fact, your accounts payable is a by 429 00:21:23.400 --> 00:21:27.100 2000 only because I paid 2000 430 00:21:26.100 --> 00:21:29.300 so you understand that my cash position is 431 00:21:29.300 --> 00:21:32.500 only affected by the cash out 432 00:21:32.500 --> 00:21:35.600 of the purchases because there's no cash in 433 00:21:35.600 --> 00:21:36.200 from sales. 434 00:21:36.900 --> 00:21:39.000 Sales collection is delayed. 435 00:21:40.100 --> 00:21:43.700 So if you look at what happens, if you grow sales in 436 00:21:43.700 --> 00:21:46.600 one case, you have more profit and 437 00:21:46.600 --> 00:21:49.300 more cash in the other case, you have more 438 00:21:49.300 --> 00:21:52.600 profit and less cash and it 439 00:21:52.600 --> 00:21:55.300 depends on the distribution Channel, which is 440 00:21:55.300 --> 00:21:59.000 very important when you make the financial analysis of 441 00:21:58.400 --> 00:22:01.500 your distribution channels in the 442 00:22:01.500 --> 00:22:05.000 company in terms of knowledge. There are 443 00:22:04.100 --> 00:22:07.000 quite a lot of new Concepts. 444 00:22:07.800 --> 00:22:10.200 First one I insisted very much 445 00:22:10.200 --> 00:22:14.100 on the fact that profit is sales Minus cost 446 00:22:13.100 --> 00:22:16.600 of good sold. And that's 447 00:22:16.600 --> 00:22:19.300 fundamental. It's not the purchases. It's 448 00:22:19.300 --> 00:22:22.300 not a production cost. It's a cost of the goods which 449 00:22:22.300 --> 00:22:26.200 I sold you remember its transaction by transaction. 450 00:22:27.100 --> 00:22:30.400 Accounts receivable as a newcomer accounts receivable 451 00:22:30.400 --> 00:22:33.900 beginning of the period plus the sales apparel exactly 452 00:22:33.900 --> 00:22:37.100 matches pencil box with how 453 00:22:36.100 --> 00:22:39.900 much I collected from my customers plus the 454 00:22:39.900 --> 00:22:42.400 accounts receivable at the end same story with the 455 00:22:42.400 --> 00:22:46.700 accounts payable begin plus purchases 456 00:22:45.700 --> 00:22:48.900 minus disbursements 457 00:22:48.900 --> 00:22:51.200 is Accounts Payable at the 458 00:22:51.200 --> 00:22:55.000 end now you have been able to observe the general case. 459 00:22:55.700 --> 00:22:58.400 generally speaking profit does not match 460 00:22:58.400 --> 00:23:01.300 with the change in cash position the first 461 00:23:01.300 --> 00:23:04.100 reason which I observed in 462 00:23:04.100 --> 00:23:07.700 this October months is a time lag between when 463 00:23:07.700 --> 00:23:10.900 I account for a revenue and expense and 464 00:23:10.900 --> 00:23:13.400 when I observe the fun float, 465 00:23:14.200 --> 00:23:17.700 that's absolutely fundamental, but they are plenty of other reasons, 466 00:23:17.700 --> 00:23:20.500 which I will have the opportunity to develop a 467 00:23:20.500 --> 00:23:21.100 little bit later. 468 00:23:21.800 --> 00:23:24.200 The last concept which is a very important 469 00:23:24.200 --> 00:23:27.600 to understand is that the shareholders contribution in the financing 470 00:23:27.600 --> 00:23:30.500 of the company the accumulated investment by 471 00:23:30.500 --> 00:23:34.100 the shareholders incorporates the retained 472 00:23:33.100 --> 00:23:36.700 earnings, which is how much I 473 00:23:36.700 --> 00:23:40.100 generated throughout the years less how 474 00:23:39.100 --> 00:23:42.400 much I distributed this is dividend. We'll 475 00:23:42.400 --> 00:23:45.400 see that in December now October is over. I'm 476 00:23:45.400 --> 00:23:49.300 very happy about my commercial success. I anticipate 477 00:23:48.300 --> 00:23:51.100 plenty of sales by year end 478 00:23:51.100 --> 00:23:54.400 in November. I will prepare the end of 479 00:23:54.400 --> 00:23:54.700 the year.