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…)

Continue ReadingBusiness Finance | Why you should read Warren Buffett’s Letter
Read more about the article Do you have a Battle Plan – or is Hope your only Strategy?

Do you have a Battle Plan – or is Hope your only Strategy?

Most of us weren’t around during World War II … but D-Day was the largest amphibious invasion of all time, with over 250,000 troops and 15,000 ships landing along a 50-mile stretch of the Normandy coast on June 6, 1944. Luck? Accident? … or the result of rigorous strategic planning and project management?

Did General Eisenhower, the Allied Supreme Commander, lead this effort without any planning?

Of course not, and even if our business plans aren’t quite as extensive, we know (deep down, we know for sure) that we need some sort of an organized planning process to build a successful business.

[pullquote]“In preparing for battle I have always found that plans are useless, but planning is indispensable.” ~ Dwight D. Eisenhower, (American 34th President (1953-61). 1890-1969)[/pullquote]

We need to make sure that everyone’s headed in the same direction … that we don’t ignore the obstacles or overlook the great opportunities on the road ahead … or don’t squander valuable resources chasing rainbows.

That’s why you should listen to our 5-part podcast series that demystifies planning and describes a simple discipline to get you started.

Do I really have to plan to have a successful business?

I find myself using General Eisenhower’s phrase repeatedly for at least two reasons … it’s true … and (more…)

Continue ReadingDo you have a Battle Plan – or is Hope your only Strategy?
Read more about the article Flush the recession Kool-Aid! Create your own demand!

Flush the recession Kool-Aid! Create your own demand!

“Teach a parrot the terms ‘supply and demand’ and you’ve got an economist.”

~ Thomas Carlyle

A lady walked into a neighborhood market one day and spoke loudly over the counter to the head butcher.

“Your prices these days are atrocious, Sal. Joe’s Deli across the street is selling your $10 chuck roast for only $5!”

“I know, Mrs. Haggle. I saw the sign. The thing is . . . Joe doesn’t have any chuck roast.”

The law of supply and demand still rules

So, the law of supply and demand rears its head again, some days a beautiful vision, other days an ugly hag. We’re surrounded by her mystique everywhere we go. Traffic is tied up because there are more cars than highway space. Starbuck’s is backed up because people want coffee faster than it can be made. There are no paper clips in the supply room but there’s plenty of fruitcake left in the kitchen.

Even for tickets to a free concert?

Supply and demand drove markets long before economists appeared … and its jarring prevalence is unavoidable. One of my favorite examples is (more…)

Continue ReadingFlush the recession Kool-Aid! Create your own demand!