Warren Buffet and The Interpration of Financial Statements

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On my flight out to Toronto I read Warren Buffet's book on the Interpretation of Financial Statements. Quite a quick and easy read for those of you who have a grasp of financial statements already (ie. know that the names and components of the statements)

So what does Warren look at when he's investing?

1) A consistent product - ie. low R&D costs. If the company has to keep investing to change it's product then that means it's in an extremely competitive industry, not a good sign when searching for a company with a durable competitive advantage.
2) Low Debt - looking at the cash flow statement, if a company generates enough cash from operating activities, it doesn't need to finance its investments through debt or equity.
3) Zero Preferred Stock - his theory is that a company with a durable competitive advantage doesn't need to issue stock for capital - they have such tremendous earning power that they have enough to buy back shares, which leads us to our next point.
4) Treasury Stock - this means the company has enough money to buy back its shares and it's sitting there waiting to be reissued.
5) Leverage - Warren stays away from companies that are highly leveraged. Banks borrow at 6% and lend out at 8%, generating earnings for the company. However, once the borrowers start defaulting on their loans, the earnings disappear and the need to pay back the loan is left on the shoulders of the company - a total disaster.

Those were a couple things I took from the book, a quick summary for your benefit. Back to work!

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Accounting - 2nd time's a charm?

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I can't count the number of times I've made fun of accountants (Yes - I'm sorry but I do come from a Marketing and Finance background and you guys get a couple of shots in on us too :) It's all in good fun)

The point is, lately I've actually revisited accounting and some of those liquidity, profitability, solvency ratios and analysis of financial statements.  Honestly, this time around I find it so much easier to understand and it's a lot more applicable to my business situation.  When I analyze my own financial statements what would I say about my company?  Is it doing well?  Would/should an investor put money into it based on the analysis?  I'm sure investors go beyond just looking at the financial statements to decide whether to invest, but it is still one of the criteria that they look at.

For all you business/commerce kids.  Remember how financial statements seemed like endless memorization of ratios and elements of the financial statements?  If you spend some time running your own business big or small, you'll quickly find that it's quite easy to understand when applied to the real world. 

Profit/Loss (statement of earnings) = Revenues - Expenses.

Statement of Retained Earnings: What you have right now in RE + the Net Earnings - Dividends you paid out = Your new balance (it's just like a bank statement!)

Balance Sheet:  Really?  Just make it balance.  Expenses aren't in here.  Just stuff that you own, owe, confirmed that you will receive, and confirmed that you will pay.

Cashflow Statement:  Three ways to use/get money in a business - operating activities, investing activities, and financing activities.  All things having to do with getting money into your business is under financing; all things having to do with your company buying/investing in hard assets is under investing activities, everything else - operating. 

Alright accountants, don't give me hell just yet, these are just some easy guidelines I'm providing, I'm sure you guys will say there's a deeper science to this.  This summary is for all of us who aren't accountants.

So there you have it.  Financial statements summarized in a blog post :)

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59 Seconds - Richard Wiseman Part 2

As promised, here's the rest of the review on the book. Some of the key interesting things I found and think both you and I can apply in our everyday lives.

The remaining areas are: Relationships, Stress, Decision making, Parenting and Personality

Relationships: Wanting to start a relationship? Staring for even a few seconds in a person's eyes will help develop mutual attraction. Rekindling a relationship? Do things that you would do as if it were still "early" in the courtship period. Read: something exciting.

Stress: Go somewhere with sunshine. At higher temperatures and sunshine, people are in a better mood and improved their memory. Also, being conscious of the activities that you are doing every day that are helping you burn calories will actually make you lose weight without doing anything extra. Start counting those calories from walking 2 flights of stairs, carrying 4 bags of groceries, etc.

Decision Making: Want to know if someone is lying to you? Ask them to email you. 14% of people lie in emails, 21% in texts, and 27% in person. WHAT?! And you thought seeing their facial expressions and body language would be a total giveaway.

Parenting: praise your kids for their effort, not for their achievements. Kids praised for their efforts will think that they should keep working hard for their achievements, whereas the same can't be said for kids praised for their achievements.

Personality: I wish I could share the short personality test in the book but I probably shouldn't. Here's a tip though, if you want to find out the personality of someone that you're with, ask them to describe their pet's personality; research shows that a pet's personality is a reflection of the owner themselves.

So there you have it. My first book review and many more to come! Hope you enjoyed this one.

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59 Seconds - Richard Wiseman

Cover via Amazon

Every two weeks I will be posting a book summary that highlights key points from a book I've recently read. 

This first post is on 59 Seconds by Richard Wiseman.  The book is truly for busy people that hope to change some of their existing habits for the better.  Wiseman covers the topics of Happiness, Persuasion, Motivation, Creativity, Attraction, Relationships, Stress, Decision Making, Parenting, and Personality.  Quite a bit of material but it was an easy and enjoyable read.  I actually did most of my reading on the treadmill!

Now from each section there is a key takeaway:

Happiness: writing about your daily life beats talking about it any day.  Talking about it doesn't make you happier, keeping a journal of it does.  Amazing that 90% of the public believe that talking about it helps.  So stop talking.  Get to writing.

Persuasion: When you are fundraising, saying that every dollar helps vs. saying "every penny helps" will make a significant difference in the amount that you raise.  In one experiment, a box labeled "every penny helps" generated 62% of all contributions while "every dollar helps" generated 7% of all contributions.

Motivation: Engage in Doublethink.  Think about the biggest benefit from achieving your goal, then think about the biggest hurdle to attaining that goal. 

Creativity: Outline the problem, then distract your conscious mind by solving puzzles that have no relation to your defined problem at all.  Apparently this increases the number of creative solutions you will come up with for your problem.

Attraction:  Staring into someone's eyes even for a few seconds will make them more attractive to you.  No, this is not a joke.  Also, touching someone on the upper arm increases your chances of receiving the favor you asked for by 20%.

I'm going to split up this post into 2 and the other sections will be summarized in tomorrow's post - stay tuned.

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11 Words to Make YOU More Persuasive

Right now I'm flipping through the book "How to WOW" by Frances Cole Jones.  I know it's 12:30am but I like to read before I sleep - they say you retain information better if you do that...?

I have actually seen Frances present at a conference held in Vancouver before, and she is very composed, articulate and able to engage the audience in her own way.  I bought her book on that day and it is a good read with some quick tips that you can continually refer back to.

SO.  Without further ado, here are the most persuasive words in the English language:

1. YOU
2. Money
3. Save
4. New
5. Results
6. Health
7. Easy
8. Safety
9. Love
10. Discovery
11. Proven
12. Guarantee

I wonder if I can fit some of that into PeerFX's one-liner pitch?

PeerFX is a proven and easy method of exchanging money that guarantees you savings on every transaction.

Not bad...what do you think?

Hiring Seniors that are Used to Managing People

If you run a small start up, have you ever put up a job posting hiring for a CTO, CFO, COO (whatever starts with the letter C for "Chief" something?)

We have tried this before and it has resulted in some amusing applications, interviews and reflections.

Back when we were looking for a programmer we titled the job posting CTO, stating in the job description that this would be very hands on and would require the person get their hands dirty doing actual programming. We got tons of applications from over-qualified individuals that led teams of 10 to 100 people. All of them could strategize and tell other people how to get stuff done, but 100% of them couldn't code (or aren't as good at it as they used to be when they were at the programmer level).

The point is, for start ups it doesn't really make sense to hire somebody that senior off the bat, because seniors will tell you that they are used to directing and telling other people what to do. Why would you hire somebody like that when you have NOBODY for them to guide, direct, coach, etc.? Waste of time and money.

What are your thoughts on this one?

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This makes me laugh



because when you are in the early stages of a start up you really put to use all resources that you have at your disposal. Sometimes it is that friend that built the car from the bathtub.

Ever looked to your friend that does programming or design on a freelance basis to design your website for cheap? We've either done this or considered it.

When I first started out I asked my classmates to help me with designing some of our branding material, asked my brother to do some of the front-end coding and professors to help with business strategy and contacts.

Looking at this comic strip now just reminds me of those things - not that this means I'm not reaching out to the still limited but growing resources that I have worked to build for PeerFX; I think it's economical and sometimes better to reach out to my internal network first before going to the external market for help.

Here's why. I once had an idea to build an online contest website to get the word out there for PeerFX. I went to a couple companies and got a quote and one came back with a price tag of $25,000. This is for a one page flash page that's like a mini-game.

Let's just say when I saw the quote I thought they added an additional zero before the decimal place by mistake. The logic didn't work very well either - this one page mini-game apparently needed 2 project managers and 3 designers and 500 programmers (yes I am exaggerating but you get the idea...)

So that's the reason why it's more economical to look to your internal network because your friends probably won't try anything stupid like this. It can also be more efficient because you won't have a team of 10 people assigned to a one page project and 8 of them playing rocks, papers, scissors for the whole day with nothing to do.

Go Dilbert.

2 Tips to Get Your Dream Job

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The new book I've been reading is called 59 Seconds by Richard Wiseman.  So the bottom line to getting your dream job and acing the interview is to be likable.  Yes - it's as simple as that.  Despite the fact that many interviewers stress on the qualifications and personal skills of the candidate, studies have shown that the most likable candidate usually gets the job.

Here are 2 tips to help you ace an interview:

1. Talking about mistakes that you have made in the past is a sign of openness and increases your ranking on the likability scale.
2. Talking about your strengths and past successes towards the end of your interview shows that you are humble and modest, which increases your likability factor.

Easily said and hopefully easily done!

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An Update of Where We Are

It's been a week since I've written and here's a little update to let you know what PeerFX has been busy with.

1. Preparing for our FINTRAC audit - which took place yesterday - I did expect them to find some deficiencies in record keeping with some of our initial customer records when our online system was still in testing.  Knowing your friends and family isn't enough - you still need to write down their ID numbers.  Sorry mom - FINTRAC made me do it.
2. Completing our new system - it will look nicer, be easier to work with and much more secure in its foundation setup and scalability.  It will also be the platform that we build our multi-currency system on.  I'm excited.  Are you?
3. SALES: The good news is that the first week of March has brought us some awesome sales numbers.  Would love to have this trend keep going for the rest of the month.  We were busy throughout the week getting deals done; gotta love it.
4. MONEY:  Yes - the other side of the equation is getting investment in so that we can invest in development, salespeople and marketing.  Tough but possible - I'm on it!

Amongst the 4 things above, I am also putting out fires everyday as all managers and other execs do.  Oh yay!

Working ON and not IN the Business All the Time

So I asked my advisor Raymond about this today: If you were asked to put money into PeerFX today what would you be looking for?

Raymond works actively with us and asking him this question would let me know where the main problematic areas of the business are.  Running this business I feel that more often than I would like I am working in the business rather than on the business. It really takes someone that is further out from the center of the business to give me another perspective on what the priorities should be.  I have my own set of priorities, but what matters most to parties that I need buy-in from? 

Here were the four things that Raymond mentioned:

1. Sales funnel and a cult-like adherence to a process. Also included in the funnel is a estimate of $ value/qualified prospect with probability of close within 30, 60 and 90 days. This way we see actual sales and a projected discounted sales pipeline.  Great suggestion - we're definitely focusing too much on signing up clients and not doing the greatest job of keeping track of our sales activities.  This needs to be cleaned up in the next week.

2. Product Mgmt process: where new products or services are contemplated. This is the where we work ON the business and not IN the business  Like I said, this is what I need to work on - there's one problem - I can't delegate a lot of the work that I handle such as banking operations and transaction processing.

3. Customer satisfaction metrics. - this is extremely important for us since our business depends heavily on recurring transactions.  We are working on several ideas to pump up recurring transactions and we will see results this month.

4. A peer or formal board and mgmt review every month (using some sort of Balanced Score Card) I have admittedly been slacking in this area; we do have a weekly progress review with Raymond but my Toronto advisors are probably wondering what the heck is going on out in Vancouver.  This can be fixed by simply sharing our meeting minutes from every week with our advisors.  Smack myself on the head - why am I not doing that already?

I encourage you to ask yourself and your advisors similar questions on a continual basis.  The more often you work ON the business and not IN the business, it will help focus your thoughts on where to take the business.  Admit where in the business things are going wrong and work to improve it!

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