Edmonton Business Consultant | Organizing Your Income Statement
All right. We’re talking today with Josh spurl, the Canadian CPA from north of the border who is coming onto the show to educate us about all things. Accounting Accounting One oh one organizing your Edmonton Business Consultant statement. Josh, talk to me about the four main sections of an income statement and try not to reference Brian Adams Molson beer or the mounties while doing it, please. Okay. Okay. So we start at the top with the Justin beaver revenue section. Oh Oh oh
and in that section, really we’re thing what, what we have collected before we’ve paid any expenses. So this is the gross receipts coming through the door, the amount that your Edmonton Business Consultant pay you before anything gets paid. Um, from there we’re moving down to the cost of sales. Now these are the expenses that are directly related to the services you’re offering. For example, direct costs to sales for a, the employees that have to do the work or you know, we’re looking at supplies that were directly responsible for do the work. From there, we’re looking at general expenses. Now these expenses are, are more, you know, fixed and stagnant in nature. For example, your rent, your Edmonton Business Consultant, administrative staff, your, you know, the phone lines. These are things that won’t change whether you do $1 of revenue or $1 million of revenue.
Got It. So you have cost of sales, general expenses. I feel like there’s two other sections that I didn’t, I didn’t accurately take notes of. I’m trying to take notes. You’re, you’re like a wizard from Canada here. I’m trying to keep up with you. So the four main sections of an income statement, we got the cost of sales. Got It. General expenses. What were the, what were the other two? So revenue, revenue, cost of sales, general expenses. And then you’re going to have an other items section. Other items. Okay, got it. This just in, I got it. Now why is it a good idea to organize your income statement in numerically descending order? Ha Ha. Andrew, you said that it was you. You’re supposed to organize your income statement in numerically ascending order, but it’s descending order. Oh, Andrew, you don’t remember saying that? I don’t and I don’t either. But I need a good scapegoat. I talked to me about why it’s important to sort your income statement numerically descending order. What does that mean? So, so
you can think about the expenses on your, the expenses for your business. Now, if you can organize these alphabetically, but I would say that those don’t have very much meaning. What you want to do is organize them in numerically descending order and almost figuratively in, in, and align in your head. Draw a line and the stuff at the bottom below the fold so to speak. That’s not the stuff that’s going to drive your profits. This, the stuff above the fold that’s really going to drive your Edmonton Business Consultant. You know, and most business, it’s those direct costs of sales. You know, what is your Edmonton Business Consultant margin on, you know, the House that you build, the contract that you execute, you know, the service that you do, um, the patients that you see. Um, and then, you know, what is your staff costing you? What is your rent costs? Are you, what’s the depreciation on your equipment? I see. To be too many business owners, they get lost in the weeds and they want to start talking about, you know, what they’re interested in. Bank charges are when they have a revenue problem or they have, they’re paying too much in rent. So if you organize your, your expenses and numerically descending order, you can focus your time and attention to things at the top.
I got to tell you a sad, sad story. Uh, that doesn’t end. We’ll uh, about a coffee shop that, uh, I once was asked to help in Kansas City, true story and this coffee shop, uh, they would charge the average customer for coffee about a dollar 50 for a cup of coffee. Um, then, uh, they would charge you a dollar 50. You have the coffee. People love the coffee house by the way. They love the coffee blind around the door. A lot of times, popular part of town, a dollar 50. Now there’s a popular place nearby. W uh, maybe you haven’t heard of it there. I don’t know if you was in Canada would called Starbucks and uh, so have you, you guys have Starbucks in Canada? We have a Starbucks Cli. Okay, so the, this, this, this Justin, they have a Starbucks in Canada. So anyway, so what happens is, this is just true story.
She’s charging a dollar 50 for a cup of coffee. Now Starbucks, have you ever Jason to be robot coffee at Starbucks? Yeah. What is that like four bucks? It’s about three 45 what I get. Okay, so three 45, she’s charging a buck 50. I say to her, this is about what, seven, eight years ago I said to her, here’s the deal. Your Edmonton Business Consultant is awesome decor. The ambiance is great. You’ve got a line around the door. Many, many things are going well for your business. She had kind of a, um, it’s kind of like a homey feel like a hangout, like an ambiance where people just wanting to gather there. It was a really neat place. And she had an outdoor deck. I mean, it was cool. I mean, as a veranda everybody would hang out there. Uh, but at the end of the month she was making maybe dude, maybe a profit of like $1,000 after working all month.
Now she had the building that was paid for, uh, because she was able, she inherited the building, but she was personally working in the store and was paying herself almost minimum wage and then had $1,000 a month profit. And all she wanted to talk about was the credit card fees and how she wanted to negotiate because the one provider was like 3.1 cents per or 3.1% per transaction and hers was 3.19 and that guy was just screwing her and she was going to get it right. But every meeting she’d want to focus on that. And I said, listen, we’ve got to raise the prices. And it was almost like she cathartic. Lee wanted to focus on what didn’t matter to avoid the big problem, which was her emotional desire to not raise prices. Is this, is this common, I mean I see this a lot as a business coach, do you see this a lot where people focus on exclusively, they’re majoring on the minors and not majoring? The majors
that is extremely common were business owners. They are fixated on how much their cell phone costs or how much the bank charges are, or a small insurance fee. Uh, and, and they’re missing the big things, which are generally pricing, you know, how much it actually costs you to deliver your Edmonton Business Consultant. The direct costs of that coffee, you know, how much the rent is, how much of the amortization on the building equipment are, you know, those are really, that’s where businesses are won and lost.
You know, a while back, I, uh, thought that I had skin cancer on my face when I went in for a checkup, you know, and there was my, my bright side of my head, if I’m facing you, the right side of my head had like a mark, you know, and uh, I went there and looked at it. I had to get it checked on, you know, found out it wasn’t cancerous, whatever. And then I obsessed on it for like a month. Every time I’d get rid of them when I’m looking at my head like, ah, God. And then I realized my entire face is what needs to be replaced the entire face. I don’t need to focus on that. It’s my entire face. And then it felt so much better when I majored on the majors instead of minor in the minors. I’m running around and talking about this little blemish, but my whole face is a blemish. That right there is helpful stuff. That’s great dermatology knowledge you’re not going to get in Canadian college. I’ll tell you that for sure. Okay, so you’re all, I’ll drink a Molson to that. Alright, so now we’re talking about your income statement. Why should it be one page?
Well, so if an income statement is too long, you know, we just talked about business owners getting lost in the weeds. Now there’s, it’s really difficult to interpret. You know, how am I doing? If your income statement is two, three, four, five pages long, you should be able to get that income statement and, and literally look at it in less than 60 seconds and determine how am I doing in my business. It’s designed to help you make decisions quickly.
Okay. This is a big idea though. I want make sure someone’s getting this idea. When you look at your Edmonton Business Consultant statement, it should be one page or less and you should be able to use it to make decisions quickly. Let me, let me just please somebody out there has to get this idea. Jason, have you ever been voting? No. You’ve never been voting no on a boat. I’ve been in the canoe. This is going to change him soon. We shall boat. We will get a boat and we will go as theK and say, we will go about a vote. We’ll go a boat. Uh, over there. I think it’s Canadian for about right about, uh, I think it’s a boot. A boot. How do you say about up there? I’m from Minnesota where we say to kind of the same thing about, about, okay.
So anyways, close. Anyway, I thought it was similar. It wasn’t one man. The point is when you’re driving a boat, um, you’ll do is you’ll look and if the, if the boat is actually going to the left or to the right. Uh, Josh, have you ever been a boating up there in Canada? I have been a boating. Okay. And so when you’re in the boat and you noticed that it, man, I’m getting closer to shore, you just turn the boat and it’s like a, not a complicated thing, but if you want to go from point a to point B, there’s water, there’s wind, there’s variables. And so what happens is you just make minor corrections as you’re steering the boat to get from a to B, right? And let’s say you run a business too. So you’re driving, you’re going from a to B and you’re going to see, wow, we’re in shallow water.
Or look, there’s another boat in the way. There is somebody on a jet ski, whatever. And you go around them. But you have to be able to look at the things right in front of you and make those minute by minute decisions. And that’s how your Edmonton Business Consultant should be. But most people, what they do is they’re just going straight line right into a shore. And then once a quarter they get out and go, well, Gilligan, ah, we appear to be shipped back here. You know? And that’s what happens, right? Isn’t that how most people, most people do accounting. Yeah. Unfortunately they make it a little too complex really. And people just get overwhelmed by it. So again, that’s just this very practical knowledge. But to get your, your, your, your income statement should be one page long and a little fun fact way to it. Speaking of long, uh, Chris Long, the NFL defensive end for the Philadelphia Eagles is going to be on our show here soon. So I’m excited to have Chris long on the show. Chris will be on the show. That was an amazing segue there. One page long, Chris Long. You see, we said, guess who I did there again? Yeah, I like it. Wow, that’s amazing. This guy’s got, so what happens to classification and variance analysis when your chart of accounts gets too big?
So let’s look at, uh, let’s look at an item. Let’s look at insurance for example. You know, the average business owner, they’re going to have, you know, maybe a general liability insurance and they probably have insurance on their vehicle as well. Um, if you start, you know, spreading out these classification items, you know what’s going to happen is your, the number of accounts you have is going to get bigger and bigger and you’re trying to compare them from year to year or month to month. And really you’re going to lose that comparative analysis if you’re spreading these out because your, the more accounts you have, the more classification errors you’re going to have.
Not good this. Justin, I hate to speak in jargon, but that’s not, that’s not good. That’s not good. That’s really not,
oh my God.
Okay, so is it okay to use sub accounts or items if you need more detail, can you do that? You can,
you can, but you want to have the ability to wind those up. I would say the default is most business owners want to create new accounts when most accounting software has the ability to track what we call items. So there are reports that can be run from within the account. Think of them as as filters. So you can filter the supplies that you bought at home depot versus the supplies you bought at Lowe’s. For example, a sample.
You guys have loads up there in Canada. We do have a Lowe’s. Okay, let’s just end this Justin. So what about Starbucks and Lowe’s? Okay, let’s, let me, let me, let me explain this to you real quick here. I have been to Canada multiple times in Canada. How many live in Canada? I believe there’s about 30 million clay in Canada. It’s really not that different from America in a lot of, in a lot of ways. I mean the accounting, you’re a CPA up there, but it stands for something kind of different. In America, a CPA is a certified public accountant. What does a CPA stand for up in Canada it stands for chartered professional accountant. So for somebody out there who’s listening who says, I can’t possibly take advice from this guy, he’s from Canada. What are the major differences that you see between Canadian Accounting and American accounting?
Just a couple, maybe high level where you go, this is, we do something different here we do something different. There. Is there any major differences? You see? It’s really limited to tax. Okay. That’s it. And do you guys pay on average more taxes in Canada or less for anybody who’s just now tuning in? Well, in, in Alberta, the province that I live in, we used to actually have a, a very friendly, uh, uh, tax government and, uh, you know, next to Florida we were, we were one of the lowest actually North America. Really? Oh, wow. Yeah. But we’ve had some, uh, I’ll call them less than favorable government changes in that area. And now we’ve, uh, we’ve literally jumped 9% in the last few years. Really 9%. While you’re getting a lot of city parks, you’re getting a lot of highways, you getting a lot, a free college, you get a lot of free healthcare.
What are you getting for the extra increase? Um, our, our, currently, our government’s decided to purchase a pipeline that, that, that they’re not building right now. The government decided to buy the pipe. Is this the keystone pipeline? Yes. So your government bought the pipeline and is now not doing anything with it? Yeah. They’re gonna argue that that may or may not be viable with various special interest groups. That makes sense. That’s what governments do. By the way, your government sounds like there a copying playbooks out of the pages, out of the American playbook of government. It’s just what you want to do. If this is the tip out there, if you’re ever out there, you one, you’re thinking about starting your own government for thinking about starting your own country. What you’re gonna want to do is you’re going to want to have a contest for who is the most charismatic person, the best speaker or the most popular, we’ll call it.
It’s like a popularity contest. You know, and whoever is the most popular, the best speaker, you’re going to want to put them in charge regardless of whether they know what they’re talking about at all. And then they’re going to want to dress up to be a figurative Santa clause and to promise anybody who votes for them free stuff. And they’ll do that until they eventually run out of money and then they’re going to start printing money they don’t have, which causes inflation or this is how you run an effective government. Then you start printing money that you don’t have, which devalues the currency to Fiat currency currency that is created by decree, not backed by anything. And then eventually the value of the dollars will go down and you’re going to secretly tax your citizens through inflation because their money’s worth less or less all the time.
And then when you can’t do that anymore, then you just raise taxes and you start complaining about how big business is ruining your economy. Have I pretty much summarized how to start an effective government there, Josh? Is that a, is that a move? Get that seems accurate. Jurisdiction to jurisdiction doesn’t really matter where you are. Nice. Okay, so in most businesses or what are the most significant general expenses? Oh, people in America would typically call that fixed expenses, right? Where you, it’s, it’s a what kind of, uh, what are the most significant general or fixed expenses that one could a plan on? Yeah, we kind of touched on this earlier than most the most significant general expenses. You know, this can vary from business to business, but generally it’s gonna be your rent, you know, where you’re operating the business from. It’s gonna be your administrative staff and it’s likely going to be the amortization.
When I say amortization, it’s the depreciation on equipment over time. So if you, you know, buy a tractor backhoe or a building, you know how much that depreciates over time, those are probably the three most significant expenses and really any business, um, for anybody out there who liked to know, um, if somebody bought, let’s say a ton of Molson ice or hockey sticks or Justin Bieber albums, how aggressively could we depreciate those things? So, um, sorry that was just a, Andrew put that on the teleprompter and I just drew, you cannot put those passive aggressive American Canadian divisive issues on the, the show notes. It’s just rude and it’s offensive and I’m not going to stand for, that’s why I record this show. Okay, so why should you not put salaries, uh, to the owners or their family’s indirect costs of sales or general expenses? So one of the, like the biggest number you want to know as an entrepreneur is what do you make in your business before you pay yourself?
And it’s a common error. I always see business owners and they have their salary, you know, mixed in with direct costs of sales or general expenses. And we go back to that one page income statement. Now wouldn’t it be nice to be able to look at your income statement every time and know what do I make before I pay myself? Yes, that would be nice. That would be a nice, that is what people are looking for. People are looking for a proactive accountant. This Justin, my friend was sort of items go in to the other income and expense category. So now here is where you going to put the salaries that you’re paying to the owners and you know really the owner’s family or any other related parties here. Uh, we don’t want those up in the general expenses. We want to be able to state what the business makes before the owners pay themselves.
Then in the other item section, we’re also going to have tax a usually any asset sales. So if they sell a piece of equipment that’s more of a onetime event and doesn’t really deal with the, the ongoing parts of the business or any investment income, you know, let’s say you’re, you’re a doctor but you have an investment portfolio on the dividends that are paid. That doesn’t have a lot to do with your practice. It’s more of a separate function. Okay. Now before I ask you my final question, I know Jason is conjuring up a tough question for you. Jason. These super manager with elephant in the room, men’s grooming lounge and Andrew, the coder slash videographer slash coach guy with the thrive time show. He has a tough question. So, but my final question before they paint you into a corner and ask you a politically incorrect question as I would never do, um, is net income as important as income from operations?
No. So I would, I would suggest that as a business owner, your income from operations is more important. So we’ll back up here. So now this income from operation is before the other items. So it’s before the salary that the owner takes. So this is his income from operations is what you make before you pay yourself. Everything below that number can be a strategy. Um, for example, a business owner can take $0 million in salary or they could take $200,000 in salary. Um, and know af net income is a factor after that’s been calculated. So really think of income from operations before you pay yourself. Net income is after tax and after you pay yourself. Okay. All right. Now, Jason, what is your final tough question for our Canadian CPA north of the border, Mr Josh Squirrel?
I don’t know if it’s a tough question. Josh has been like on point the whole time. Um, so as a CPA, and we discussed this earlier in alternate dimensions, people that we don’t know, parallel university exactly. Um, those who are completely unfamiliar with their finances, they do not have a roadmap, let alone where to start going through their finances, budgeting month to month. In your, I guess final opinion, what would be the single greatest place to start? What would be the item a on the roadmap for them to fully understand all of their financing and budgeting?
So I think the, the place to start, um, you know, really you gotta look at your source documents. So it’s, it’s really a document gathering procedures. So you’re, you’re gathering up what your assets and what your liabilities are. So if you have any business loans, the mortgage on your house, the cash in the bank, the investments that are available before you even start drilling into what’s happening month to month, you know, it’s a good idea to actually understand where are you right now, you know, what assets that you have, you know, what obligations do you have? I have a way to make that very actionable for all the listeners. I 100% agree with what Josh just said. I would get a spreadsheet today and I’d make a list of all your income on the left, all your income, and you might say, job, job one. Okay, and then you put in on the left, it just, this is my description, and on the right you put, this is how much I make, so I’m making up a number of, but you might put it on there, 7,000 a month, 4,000 a month, 3000 a month, whatever it is, and put in the income after taxes, not before taxes.
So you know, this is how much money I’m going to bring it. Then on the right, then on the right side, you make a list of all your expenses and you say a Starbucks car payment, regrettable tattoo on my face, removing the tattoo on my face, all these different things, and then you just look at them and you go, oh no, I’m spending more than I’m making. And then you want to make some cuts needed. Because what happens is a lot of people, I’m sure this is a uniquely American problem, Josh, you probably don’t have this in Canada, but in America this is what I see a lot in American, he makes a salary of 48,000 a year, let’s say. So they go into buy a car and the car dealer says, how much do you make per year? And they said 48,000 they fill out the form.
The dealership will approve you for a loan based upon your income before taxes. So now you get a car that’s really more money than you think it is because you don’t have all the money that you think you have. Cause after taxes, the average American employee is spinning about 45% of their income in taxes. You know, so you, you make 100,000 a year, you really don’t make 100,000 a year. You really make 65,000 a year. And so it’s so important that you make a list of your income after taxes and all of your real expenses because so many people are trying to do budgets based upon income they never see. And it’s not really your income if you’re paying it in taxes. So I just encourage everybody to get down to the real number you actually see after taxes, when you’re budgeting. Andrew, you have the final question here on the magical Mike of Glory. You get to interview our Canadian friend from north of the border who’s come down from Canada via an airplane. He’s flown out here to Tulsa, Oklahoma. And you can ask him any question you want. All right. So,
um, a lot of the business owners, um, and clients, not your clients, but other people don’t really look at their numbers. You know, they don’t sit down once a week, once a month, once since they started the business to look at their numbers. Um, so how often do you recommend a business owner sit down, look at their income, their expenses, and just their numbers in general, what is it? Once a week, every day, every month. What’s that number look like? No fewer than once a month. Um, you know, we have some clients that we call them outsource accounting clients that we’re running their payroll, their payables, and we actually have a set time to meet with them every single month to review how they’re doing in their business. You know, what went right, what went wrong, and what we’re gonna do to improve next month.
All right, you got to look at it at least once a month there. You’ve got to, let’s look at at least once a month. They’ll look at it once a quarter. Don’t look at it once a year. Look at at least once a month. I recommend setting a weekly time in your schedule to look at it for an hour of power. Josh, would you agree that that ideal situation taken once a week to course correct is probably a healthy exercise. Yeah, I would say once a week on your own and once a month with professional. I agree. I agree with that. So without any further ado, we’re going to wrap today’s show. Josh, thank you for coming down here via airplane technology. To visit us here south of the border. And uh, can I ask you this, cause you’ve been to a America multiple times, um, what’s the biggest difference you’ve seen culturally between like Tulsa and, uh, your neck of the woods up there in Canada?
Oh, the biggest difference. I think things are maybe a little bit more spread out here in Tulsa. Really? Yeah. There’s a little more sprawl than we have in Edmonton. Is it pretty, pretty close confines for giving is pretty close. Oh, we’re not talking Europe. Close confines, but maybe somewhere in the middle of those two. You know, in India people actually share bus seats. Oh, do you know this? I did not know that. Clay, I’m not kidding if you get on a Canadian, if you get on a Canadian bus, I’m not sure if this is normal for you, but if you get on and on a bus in India, I know this cause a bunch of my friends have done missions work over there. You’ll make eye contact with a man with a man and you’re a man and he will look at you and he will tap his thigh.
And Go, which means that you can sit on his lap. And I’m not kidding, because they literally have set it up where there’s two people per seat on the bus. I, is that something you do over in Canada? Dude? Do you guys still do that in Canada to people still sit on each other’s laps on Canadian buses? That’s not happened yet. And if it does, I’ll, I’ll change my answer to their announcing citizens that my friend told me that and I’m like, no way I would have pieced out right away. I could not handle that. Also, people in Indian Fun factoid for you when he was there. This is like 10 years ago. It’s a, it’s a move for guys just to use the restroom in a ditch. It’s just to move. People are walking around and they go, well, it’s time to make it happen in America.
If you pee in a Bush, you, you know, that can be now go on your record as a sex crime. Uh, and Caden of UPN, a bushes at a sex crime or GRP or men out there just peeing on the bushes everywhere. It depends how far north you go, clay. Oh, so don’t get in trouble with the mounties. Final tip here. Don’t get in trouble with the mounties. Make sure you consult your local law, you know, laws and regulations before peeing in a Bush. Josh, thanks for being on the show. Thanks for having me. Clay.