Read more about the article Business Finance | Warren Buffett | Should We Depreciate Our People?

Business Finance | Warren Buffett | Should We Depreciate Our People?

A Weekly Business Finance series for Non-Finance Executives!

“Financial Adrenaline” is a term we love around here because it reflects our commitment to help you turbocharge your business with practical tips and techniques to improve free cash flow, the lifeblood of business. As a further extension of our Financial Adrenaline program, we’re going to share a new Business Finance Tidbit every Wednesday specifically for those business executives who don’t have a finance background.

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Depreciation = Cash? Why do we care?

We’ve kinda been on a Warren Buffett tear lately, and last week I encouraged you to read his recent 2010 Annual Report to Berkshire Hathaway shareholders.

I want to plant another seed this week about an often misunderstood concept: DEPRECIATIONIn accounting, an expense recorded to allocate a tangible asset's cost over its useful life. Because depreciation is a non-cash expense, it increases free cash flow while decreasing reported earning. It is used in accounting to try to match the expense of an asset to the income that the asset helps the company earn. For example, if a company buys a piece of equipment for $1 million and expects it to have a useful life of 10 years, it will be depreciated over 10 years. Every accounting year, the company will expense $100,000 (assuming straight-line depreciation), which will be matched with the money that the equipment helps to make each year.. (You can see the definition by placing your cursor over the term.)

How is Depreciation Relevant to EBITDA?

Today, let’s just think about it in terms of EBITDA. In Does EBITDA Bury Its Own Dead?, I wrote about the perils of treating EBITDA as a placeholder for cash flow, and Buffett couldn’t agree more.

In his Annual Letter to Shareholders, 2002, Buffet describes (more…)

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Read more about the article Business Finance | Why you should read Warren Buffett’s Letter

Business Finance | Why you should read Warren Buffett’s Letter

A Weekly Business Finance series for Non-Finance Executives!

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Read Warren Buffett’s Letter to Berkshire Hathaway Shareholders

So, why not  jump into the deep end right now by reading Business Finance is about much more than finance

I’ve said before that leaders don’t have the luxury of confining their interests to just a few things

(more…)

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Read more about the article Business Finance | Are You Ready for an Injection of Financial Adrenaline?

Business Finance | Are You Ready for an Injection of Financial Adrenaline?

If you’ve ever exercised by lifting weights, you know that the amount of the weight on the bar is only one variable that needs to be considered for a particular exercise

If you’re doing a bench press, you can add more weight because your chest and shoulder muscles help your arms to lift the weight

But if you put 50% of that total weight on each of two dumbbells, you can’t lift either one

You’ve probably also learned that you can’t use the same weight for curls as you do for bench presses

How much weight can you really lift?

[pullquote]“Make everything as simple as possible, but not simpler

” ~ Albert Einstein[/pullquote]

Likewise, if you’re going to do only one repetition, you can handle more weight than if you’re going to lift it ten times

If you are lying flat, (more…)

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Read more about the article Leadership Styles: The Smartest Guys in the Room can kill you!

Leadership Styles: The Smartest Guys in the Room can kill you!

“When a fellow says it hain’t the money but the principle o’ the thing, it’s th’ money.” — Frank McKinney

‘Always ask why.  Dig deeper.  Get the facts.’ Avoid the crowd mentality

“Ask Why” was their motto.

“Wheel Out,” “Fat Boy” “Death Star” and “Get Shorty” were some of the nicknames applied to their strategies.

Confirmation letters of successful trades were addressed to names like “Mr. M. Yass and “Mr. M. Smart” … and I think you can parse the underlying contempt.

“Rank & Yank” described their people performance system, “Pump and Dump” their trading strategy.

About $70 billion of market value was destroyed, more than 20,000 employees lost their jobs and pension funds worth $3.2 billion were destroyed, more than two thirds of which belonged to retirees with little chance to rebuild.

I had always intended to watch “The Smartest Guys in the Room,” the 2005 movie based on a book by the same name from co-authors Peter Elking and Bethany McLean, but it got lost in the shuffle until last week.

It chronicles the Enron cataclysm, whose meteoric ascent was violently terminated with its bankruptcy on Dec. 3, 2001.

“Be like Enron” is still an ignominious curse

It’s hard to believe this happened almost 10 years ago since to be “like Enron” still reverberates as an ignominious curse. It’s really more like a viral infection, though, because so many of the forces that drove its destruction have cleaved similar fissures in scandals from (more…)

Continue ReadingLeadership Styles: The Smartest Guys in the Room can kill you!
Read more about the article Vol. 77: Grab the sword and become a Cash Flow Knight

Vol. 77: Grab the sword and become a Cash Flow Knight

“I went to a bookstore and asked the saleswoman, ‘Where’s the self-help section?’ She said if she told me, it would defeat the purpose.” — George Carlin

Too busy to clean the barn because all the horses are running loose? Our recent series featuring the Four Horsemen of the Apocalypse was a grim reminder that regardless of how many people are lined up outside our door, how many calls we have to return, whether we’re in the top ten for inbox clutter – we’re not absolved of our duty to master our most precious resource: cash flow. That’s why Warren Buffett calls it the “lifeblood of business.” Whether you’re unable to make payroll, can’t finance growth, can’t raise money or find that your business value is a black hole, mastering this process is the centerpiece of excellence.

So, what do we do about it? Although I didn’t start out to create a long series about business finance, so many of you have asked about how to make these improvements that I’ve decided to create a path to help you get there.

You CAN learn the principles of business finance

The first step on every knight’s journey is to slay any dragons in his path … so we’re going to kill off a few misconceptions about business finance. The most important is that you can learn these basic principles. As I’ve said before, you don’t have to be an MBA, CFO or accounting major to understand these essential concepts. If you focus on the core principles, you can direct your team and be sure that everyone’s paying attention to the right things.

Avoid EBITDA (except for bank covenants)

Another dragon in our path is EBITDA. (more…)

Continue ReadingVol. 77: Grab the sword and become a Cash Flow Knight