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16
Project Your Growth
and Profitability
M
oney (also referred to as cash or capital) is literally the fluid of life for
your business. If ever your Money Machine is drained of this vital fluid,
the game is over. This is not something you can leave to chance. You must
gain a working knowledge of financial statements
1
and understand what they
tell you about the well-being of your business. If you are not familiar with
financial statements, do not be concerned. They will be demystified as we go
through them step-by-step. In this chapter, you learn about four quantitative
tools you can use to understand your business.
1. The cash flow statement tells you how much cash moves into and out
of your business over a particular time period, and how much cash
remains. It also defines where the cash came from and where it went.
2. The balance sheet answers the question: What are my assets, liabili-
ties, and net worth of my business at any moment of time?
3. The income statement (also known as statement of profit and loss)
measures the profitability of your business over a stated period.
4. Breakeven analysis tells you what level of sales will cover your
expenses.
Cash Flow and Grandma
My grandmother Anna understood cash flow very clearly. Her husband, Saul,
earned a meager living as a cobbler in Lithuania during the time of the
Russian Revolution. Mustering all of their courage, Saul and Anna fled from
157

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