What do you need to know to analyze a financial statement? The answer is a little complicated. Here are the things you should know: A basic understanding of accounting. You need to be able to appreciate what the various components of a financial are, and where they come from. You need to understand the pitfalls of financial reporting, and the limitations of GAAP. A good understanding of the tools of financial analysis, how they are used and what they reveal. Things like ratios, trend lines, scatter charts, and the like are important tools, if you know how to use them. A good understanding of the industry. You need to know what is expected and what is unusual. Without some comparative information and background, your financial analysis of the company is in a vacuum, and probably meaningless. A good understanding of the business. If you don’t know anything about the business except what you see in the financial statements, you don’t know very much. When I read an annual report, I spend far more time reading the explanatory material than actually looking at the financials. I do a web search on the company, try to understand what their products are, their …Read More
First: have your idea well thought out. Do your homework. Have a well constructed, researched, vetted business plan. It should address everything that can and probably will go wrong. What’s plan A, B and C? Second: be able to demonstrate a viable, compelling USP and a ready marketplace with the capacity and resources to buy. Don’t know what a USP is? See item # 1. (USP is a Unique Sales Proposition – it’s what differentiates your product from everyone else in a manner that makes the marketplace want it in a compelling fashion) Third: Summarize your idea into one paragraph. No technical jargon. 6th grade English. Then complete a 1 pager that summarizes your business plan in simple bullet points. Reference each to the business plan. Fourth: Practice your presentation. It must be layered. 5 minute overview. Stop, assess interest. 10 minute “fill in” details. Stop Assess interest. 10 minute “close” where you prove why it’s a great investment, and address major risks. Stop, ask for questions. Fifth: Adopt the right mindset. You don’t need their money. They need your success. Never grovel for cash. Never sell yourself out. Be proud but humble. Extinguish any arrogance. Remember, the guy wearing …Read More
Question: what is it like to live through a Bear Market or Recession? How can you benefit from it? Response: For many people, a “bear market” will have little if any impact upon their daily lives. I’ve lived through many, and quite frankly, was oblivious to most of them. Yes, things may slow down if there is a recession mixed in, and you know the definition: it’s a recession if your neighbor loses his job, it’s a depression if you lose yours. A market crash is a rare event, and may not be associated with a recession. Clue: the 1987 market crash and recovery. (it was over and done with in less than a week) So, recession and bear market are not empirically linked. Your question is how to benefit from a bear market, and how to benefit from a recession. Two different things. In a bear market, stock prices are trending downward, but in spurts. Then there are a lot of up days. Volatility is up. You can make money by active, intelligent trading. This is not for amateurs, however. You have to be a good player of the technicals, and have a gut sense of what’s happening. Remember that …Read More
There isn’t one. If you are self employed and you think you should be doing your own taxes, acting as your own accountant, I have only one piece of advice: don’t. Instead of chasing down some “free” software to save yourself a few nickels, you ought to be going to see a CPA or EA. If you can’t save double what it will cost you, then I’ll eat my hat. I am as frugal as they come. After all, doesn’t CPA stand for cheapest person around? But the most frugal people always understand that you can sometimes save a dime and lose $ 10 in the transaction. This is one of those situations. People who are self employed should spend their time at what they are best at. Unless you are a CPA or EA, you ought to be devoting your time to what has the most return for the time invested. I can assure you that spending 40 hours a year keeping up with tax code, then fiddling with all your own parts is just not time or cost effective. Don’t even try to convince me that you know the code as well as a well trained CPA specializing …Read More
Is a Delaware C-corp right for our start up? How many shares of stock should we issue and at what value? How many for co-founders?
So I am going to throw cold water on this whole idea. Why would you want to have a C-Corp for a start up? ( I know the answer you are all thinking: to get funding, the VC’s want a C Corp so they can take it public). STOP. So you are going to run your life by the Inc. Magazine playbook? Let’s reiterate what that “playbook” looks like: young energetic entrepreneurs start a company, they incorporate in Delaware, get VC funding, then take their company public and everybody rides into the sunset in their Teslas with megabucks. That is a stylized cartoon view of reality. It is promoted by the media and Inc Magazine in particular. It’s not what really happens in real life to most entrepreneurs. The narrative is a fairy tale. Consultants, lawyers and the like buy into this stylized narrative because it means they can fleece their clients for big bucks now and keep them dazzled by the golden rainbow ahead of them. STOP. First off, you need to think about taxes. A C-Corp is the worst structure for that. It locks up all the early losses in the Corp, with no flow through to the …Read More
Lot’s of investors follow Warren Buffet. His approach to evaluating companies is to estimate what he calls “the risk-free cash flow” for a company and then simply discount those earnings at the 10 Y Treasury rate. Any thoughts?Read More