Welcome to the Kanketa Blog

Mar 22, 2023 14:12
Writing these blogs is the single most difficult thing I have ever done in such a short amount of time. \n\n Always Have A Predictable Profit \n\n\nThese pages demanded arduous effort from every fiber of my being. Over the last year since COVID hit, my sentiments have changed weekly. I began with a view of an out-of-balance world that seemed to be rebalancing. I saw greedy hoarders sharing and helping. \n\nI observed creativity abounding in every crack and crevice of our society. Through my lens, people everywhere began looking at each other instead of looking away. I noticed that folks of all ages and walks of life were generally slowing down and re-assessing what is really important. \n\nI had just completed my final thoughts on my first blog, when protesters hit the streets. Businesses everywhere were looted and damaged. The Constitution of our country is being challenged daily. Our legal system is being rocked at its foundation. Laws are morphing weekly. Our leaders continue to wobble. Hope of restoration of order is unraveling. From week to week I can’t identify who would ever take time to read or even be interested in the material in these blogs.\n\nI decided to rescue myself and return to the basics. I began with the premise that our country was founded on small businesses. There are universal principles that have built and guided mom and pop shops into mega giant success stories through the worst of times. One thing is certain. There will always be business, and a need for your services. And as long as there is business, there will always room for this material.\nIt’s no secret that global, national, regional, local, neighborhood disasters take down businesses. This blog could have been created during Y2K, 911, SARS, HIVAIDS, Ebola, the housing crash, amid a tsunami in New Orleans, or a touchdown of a tornado in Kansas. It could have been released at any moment of social and economic abnormality.\nIn the context of everyday business, there is also a global re-engineering. The New Normal (if there is such a thing) is demanding a redesign of our worn and dated business habits in ways that we do not yet understand. I come with years of personal proof that the information here is more critical than ever for business safety and survival.\nAnyone who is now faced with recovering and rebuilding their business has a second chance, a fresh start to course correct, and do it right with new tools.\n\nBusiness Recovery in Difficult Times\nIn another sense, this isn’t necessarily about business recovering from a pandemic. Neither is this exclusively written for the rescue of a small business in need of help in the recovery process.
Mar 23, 2023 06:20
Kanketa is an eastern based business management philosophy that has been proven over decades, in the best of times and the worst of times. The Kanketa Balanced Budget is a uniquely formed, highly crafted, method for managing money. It will give you all day-to-day financial strategies that you will need for the rest of your professional career, regardless of where your business takes you. \n\nhttps://kanketa.com/site/documents/?resid=3673d7df-d704-6607-1c5f-602e249c8175\n\nACTUAL PERFORMANCE COMPARED TO BUDGET\n\n\nEvery business problem that exists, or has ever existed is the result of one area of a company out of balance with another. All solutions can be found by putting the company into balance with itself. Balance internally, and the external forces will follow. Balance the company, and you will solve the problem. The real secret to the success of your business is financial balance. Financial balance means putting the right amount of money in the right places at the right times for the right purposes, and for all the right reasons. Your success is embedded in how you think about money and how well you put these principles to work. \n\nWHY A BALANCED BUDGET? \nA balanced budget is like the training wheels on a bike. It keeps your business from falling down when unexpected market changes constantly surprise you; social change, technological change, economic change, changes in the environment, and all the political, legal, ethical, demographic changes in age, education and income that blind side you. At any given moment, your business is being undermined by unforeseen, uncontrollable factors. A balanced budget is your suit of armor to weather the storms that constantly threaten your business and put it at risk. \nFinancial Balance is fundamental. The six components of financial balance will help you to create a useful and meaningful Profit and Loss Statement that is different than the one you might be using today. A balanced budget will expose limitations and prevent overspending. \nQUESTIONS THAT A FINANCIALLY BALANCED BUDGET ANSWERS: \n1. “My P&L shows a profit. Why isn’t it in my checking account?” \n2. “Why can’t my accountant take care of everything?” \n3. “How does this apply to me if I’m just a company of one?” \n4. “How much should my Cost of Goods Sold be?” \n5. “Is my business growing, or just going?” \n6. “Is my business set up to make a profit?” \n7. “How many managers do I need?” \n8. “I am both an owner and a manager in my business. \n9. “How much should I pay for rent?” \n10. “Am I paying (my people) too much? Not enough? “How much should I pay my people?” \n11. “When can I give my employees a raise? How Much?” \n12. “How much Net Profit should I make? What’s reasonable?” \n13. “What should I budget for marketing?” \n14. “What should I pay toward debt reduction?” \n15. “How much debt can I afford to have?” \n16. “How much should we allow for accounts receivable?” \n17. “What should I have for a line of credit?” \n18. “What balance should I keep in the business checking account?” \n19. “How much should I have in corporate savings?” \n20. “How much credit should I give to my customers?” \n21. “What should I save for corporate taxes?” \n22. “How much stock (or shares) should I give to investors?” \n23. “What is my breakeven point?” \n24. “How much should we allow for accounts receivable?” \nMen lie. Women lie. kids lie. Numbers don’t. From all that you have read about financial statements and heard from advisors and planners and from all the information on the web from self-appointed “experts”, how would you ever know who or what to believe? Here’s some real good advice. Don’t believe anyone. Not accountants. Not financial advisors. Not banks. Not me. Trust yourself first. Trust your logic and trust your instincts. If it makes good sense to you, do it. If it doesn’t, put it aside. \nIt’s not the numbers that are lying to you. Be careful that you don’t lie to the numbers that you see. If the numbers say the month won’t turn out ok, believe it. If the numbers say you aren’t growing, believe it. If the numbers say you aren’t having a good year, believe it. What small business owners tend to do is ignore the numbers in front of them and go into denial because they want their businesses to work. Instead, they will say... \n“I THINK this month will turn out ok.” “It SEEMS like we are growing.” “It FEELS like we’ll have a good year.” “I THINK we’re profitable.” “I HOPE we can afford it.” “We’ll PROBABLY end up ahead of last year.” Think? Feel? Hope? Pray? Maybe? Probably? These aren’t the words of a confident business owner who sees numbers that show the truth. Believe your numbers and act on them in enough time to fix the problem before the problem can no longer be fixed. \nEvery concept presented here will be reduced to a number. Every idea will produce specific, quantifiable, reliably predictable outcomes. Measurable results are what the Kanketa system creates. Nothing more. Nothing less. What you do with the results is up to you. \nTHE 30-DAY BUSINESS \nKanketa is designed to manage a business one month at a time. The previous month is history. The coming month hasn’t happened yet. \nThink of it like this. Your business restarts at midnight on the first day of every month and ends at 11:59 pm. on the last day of the month. During that time, you have either made or lost money. Wash. Rinse. Repeat. \nA year is twelve one-month periods strung together with twelve opportunities to win or lose. Last month’s outcome is a worthless, uncontrollable slice of history. Everything outside of the immediate 30-day performance cycle is irrelevant. There is nothing else.\n\n Click Here for more information \n\nTHE PROBLEM WITH GAAP ACCOUNTING \n“Death and Taxes have merged. My financial statements show a profit. Why isn’t it in my checking account?” \nWe, in the U.S.A., are subject to something called GAAP accounting (Generally Accepted Accounting Principles). Unfortunately, GAAP leaves a big GAP in how business owners think about money. GAAP was invented for the convenience of the IRS. In my opinion, GAAP is not useful for small business decision-making. All accountants are exclusively trained in the GAAP system. That is how they got their government license to practice. GAAP has its own accounting language and is exclusively taught in all U.S. business schools. Like 95% of the rest of the small business owners in the US., you probably didn’t go to accounting school. So, this is how your accountant will sound to you when they talk about your finances: \n“framistans kj skjfhskj debt to income jhkj snerbs and retained earnings for the last fiscal year finorng and that’s not a good return on investment snibit, snibit .... so, pay these taxes next week, or else!” \nThe financial statements provided to you by your accountant are created for IRS tax-compliance purposes. Certainly, efficiency is necessary for the stability of our country and its economy. GAAP provides an easy, organized reporting format to the government. But GAAP financial statements are not good business planning tools. The eastern-based Kanketa money management method has a better way to learn about, talk about, and use money in your business. \nGAAP problem #1: the alphabet \nThe list of income and expenses that the government and the financial industry uses is your Profit & Loss statement, commonly referred to as the “P&L”. \nThe business expenses under GAAP are usually arranged alphabetically according to expense types: Advertising, Bank fees, Cleaning service, Delivery, etc. Alphabetical order might help to process taxes efficiently, but it masks the importance of items when balancing a budget. There is nothing wrong with alphabetical indexing for quick identification of an expense. But if the expenses on your P&L were organized differently to give you better definition and clarity about how your business is performing, and if your business would be safer, and more profitable as a result, wouldn’t you want to use that system, instead? \nKanketa uses the same numbers as GAAP, but with different labels to create a better outcome. \nGAAP problem #2: All Businesses are Created Equal \nGAAP accounting rules use the exact same accounting procedures for Larry’s Landscaping and Garden Supply, a small family-owned business, as they do for IBM, General Motors, Coca Cola and the rest. It must be remembered that Certified Public Accountants are contracted by, and work for the Federal Government. It says so right in their license to practice. They are sworn to uphold government tax laws and protect government interests. \nNo one wants to be non-compliant and get in trouble with the IRS. Many small business owners completely turn their books over to some accountant to take care of everything, believing they are avoiding trouble. No questions asked. \nIt is important to know that accountants do not hold pixie dust and are not a golden guarantee that you will avoid IRS trouble. An accountant is your first-pass, proofreader of your tax situation before you enter the lion’s den. They will spot little things here and there. But accountants can often just as easily create bigger problems because they do not and never will understand your business as well as you do. \nYou pay an accountant to fill out government forms accurately. That is their service. Maybe you are buying this service because you might be afraid to make a mistake. Maybe you don’t have the time, interest or inclination to do them yourself. Remember that the forms are not designed for accountants. They are designed by the government to be independently used by the everyday U.S. citizen. Accountants can only work with the numbers that they are given. \nAccountants are often too busy to remind you to file tax forms. They certainly don’t follow you around every day and make notes about your intentions to spend your money. So, the bottom line is that your business starts and ends with you. \nMy advice: Yes, you need professional services to review your numbers for any errors and oversights and keep within the constantly changing tax laws. But, learn how to control your professionals. Control your accountants. Control your lawyers. Control your bank. Stay in control of your business. \nThree Financial Tools Used by Businesses, Banks, and the Government \nThere are three basic financial tools used for business decision-making: \n• Profit and Loss Statement (P&L) tells how much money you made \n• Balance Sheet tells you where your money is \n• Cash Flow Statement tells you when you can spend it \nReading Financial Statements \nMost small business entrepreneuers who haven’t attended business school must rely on monthly P&L statements (and in some cases fortune cookies) to answer their business questions. I often hear comments like “we’re ahead of last year at this time” or “our utilities costs are down over last year.” \nAgain, think of all the possible changes that we mentioned earlier that happen to a company in just one year to impact finances, and your P&L statement; the social, technological, economic environmental, political, legal system, ethical, and demographic changes in age, education and income. This is well worth repeating. \nNow add to these, the changes in personnel, and the ownership changes within your customers’ and your suppliers’ businesses, and even the possible changes in your own business, not to mention the priority changes that show up in your personal life. What possible relevance does a comparison to the previous year have? Yep, you got it. There is no point whatsoever in comparing one year to another. Don’t waste your energy chasing ghosts. Focus on the now, 30 days at a time. \nRecently, there was a business guru as a guest and speaker on a national television show who claimed that a small business should focus on its balance sheet, not on its sales. His presentation was well received by the audience. \nYes, the speaker is generally correct about keeping an eye on the balance sheet; what you own and what you owe. However, it would be like a medical doctor who is prescribing an aspirin for cancer. \nA balance sheet is the result of good financial management. In my opinion, a balance sheet is not a critical component of everyday business decision- making. The person who focuses on a balance sheet would have a different agenda than the day-to-day management of a business. Balance sheet information is needed to get a loan, or for selling or leasing the company, and making purchases that strengthen the company’s value. If you are in the start-up phase of your business, don’t waste your time right now on balance sheets. You must first get your expenses under control. \nTo review, the P&L statement is a list of income and expenses that tells the government how much tax you should pay. The Balance Sheet is your Kodak moment, your “snapshot-in-time” that tells you where your money is at any point in time. The Cash Flow statement tells you when you can spend it. \nAccurate day-to-day budget management will help you to control the outcome of your balance sheet and your cash flow statement, but not the other way around. Your ability to adhere to a budget is the most important thing you can do for your business. The trick is to get a workable budget in the first place. I say, get some sleep, lower your stress level and watch your headache disappear. Take an aspirin to tie you over until bedtime. \nWhen are You No Longer a Startup? \nAn annual revenue of $50,000 or less is considered a hobby. I say that you aren’t a real business until you are consistently selling at least $8,000 a month, $100,000 a year. Less than this is what I call a “Seedling”. You have a great idea. You’re poking at it. It just hasn’t happened yet. \nThe following page gives a simple example of a GAAP P&L. I choose this example of a Start-Up company because it graphically illustrates how the smallest of Start-Up businesses typically spring out of the gate. \nA GAAP Example \nIn my example here we are seeing a tiny business first moving off the launchpad. Notice the GAAP alphabetical arrangement of expenses. \n \nAlphabet Soup – The GAAP P&L \n \nI find that most owners of small companies usually base most of their decisions on three numbers: Sales, Net Profit and Gross Profit, in that order. \nThe P&L \nTypically, owners review their Profit and Loss statements (P&Ls are historical data) by first looking at the Gross Sales for the last month. Next, their eyes anxiously skip to the “bottom line” profit. Finally, they might quickly glance at the Gross Profit. \nGross Sales, Net Profit, Gross Profit, Done. \nProfit, profit, profit! The definition of the word “profit” is so often confused and there seems to be as many different definitions of profit as the number of people you ask. \nHere’s little something to put under your hat until a little later. Contrary to popular belief, Profit is not the most important number in your business. One month before Toys R Us filed for bankruptcy, they had the highest profit month in their history. Over $300 million dollars. Profit is important, but not the most important. More on this later. \nNow I’m going to give you a new word to add to your financial vocabulary. Kanketa substitutes the word “MARGIN” for Gross Profit. \nHere’s your first GAAP challenge. \nGAAP accounting language might confuse you with terms like Net Ordinary Income, Uncategorized Income, Other Income, Miscellaneous Income, Interest Income, Total Other Income, Net Other Income, and Net Income. Will you pay yourself from any of these? \nNotice that Net Ordinary Income is both at the bottom and the top of the P&L. \nIt’s hardly a wonder why Start Ups can’t get started, and why 85% small businesses fail in the first five years. They have a confusing point of reference. \nNet profit after all expenses. \nThere is only place in the entire Kanketa system where the word “Profit” is used: Net Profit after all expenses. In this GAAP P&L example, Larry, the business owner, upon seeing the “bottom line” income, is certainly having a joyful day. \n“My P&L shows a profit. Why isn’t it in my checking account?” \n“Ah ... It shows a nice profit” comes Larry’s shout of sheer delight. Larry might quickly gloss over the Gross Profit in the process. But he is so relieved with the good bottom line news, that he is all too happy to pay the accountant the $250 for the month before Larry tosses the financial statement into the bottom drawer, never again to be looked at. \nWith a gleeful heart Larry yells up the stairs to his wife; “Hey Sylvia, we made some money this month. We can buy the boat!” It doesn’t take long for Sylvia to reply. “Honey, it’s great that we made a good profit, but I hate to tell you that there is only $300 in the business account and we need it for groceries.” \nMost small companies calculate the success of the game by counting ticket sales. They focus on their P&L profit instead of focusing on improving attendance by using their on-the-field playbook. Smart coaches know that If the proven playbook is observed, ticket sales will follow. \nWhen the profit on the P&L is not in the checkbook, a good coach won’t obsess about the uncontrollable factors in the marketplace. They only focus on what can be controlled. \nWhen money for payroll is not in the checkbook, When money to pay suppliers is not in the checkbook, \nWhen money for expenses to run the business is not in the checkbook, When the Net Profit showing on the P&L is not in the checkbook, fix your money management process, and don’t lose sleep over how last month’s underperformance caused this month’s problem. \nQ: So... what’s the point of P&Ls?\nA: Preparing to report taxes that aren’t due yet. \nIf you take a minute to search the web for examples of Profit and Loss statements, you will literally find thousands of every type of P&L in existence. Try www.bing.com. Search for Profit and Loss statement images. There are thousands of business P&Ls to pick through. \nAs you give attention to the main differences between P&Ls you will notice items listed as Job Costs (Cost of Goods Sold). You will see operating overhead costs of every description. Yet, not one of those thousands of statements remotely identifies, suggests or offers real solutions to the day- to-day problems of a business. \nGAAP Accounting is for tax paying purposes. GAAP is not a good day-to-day decision-making tool for business.