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Sunday, December 27, 2015

2015 Finishes With The Completion of the Wilding Issue, A Very Disturbing Exchange on Facebook and New Recipes

Steph got me two cookbooks for Christmas and I am very excited for both of them as my weekly menus had gotten very repetitive of late. The first one is a book of over 340 one-pot meals - so casseroles, soups, curries, stews and tangines. The second is Gordon Ramsey's Home Cooking. Think what you will about the man, but he does simple food like no man's business. His book is chock full of tips on how to prepare ingredients and combine flavours. I am really looking forward to trying the recipes in this book. I sat down today and planned 4 weeks worth of Monday-Friday meals, with everything being new. The meals are mostly Winter meals, which is very fitting I think. I will share with you those that I think are worth sharing over the coming weeks.

Sales have leveled off for December and I think I'm more or less done for the year now. I expect to finish December with about $1,400 in sales. Not at all bad considering that most of this was items that sold for less than $5 each. So while my overall sales are down, my volume is up. My plan is to finish the Wilding Issue over the next few days, finish writing the blog posts on this issue, which is almost done now, and then to start January off by listing the Edward VII issues and the Admiral Issues.

However, the year finishes with one of the most disturbing exchanges with other philatelists over Facebook that shows me the degree of animosity that exists out there towards stamp dealers. I have to hope that what I encountered today is not representative of the collector base as a whole, otherwise I have made a colossal mistake leaving my profession.

It started with a retired collector listing the following group of 1935 Silver Jubilees for sale:

From what I can see these are fairly nice stamps. I don't deal in the whole Commonwealth, but I do occasionally get inquiries from customers for these. So I made an offer of $25 USD for all of them. I know that they list for more than this in Gibbons, but for a dealer trying to make a living $25 was a fair offer.

Immediately the collectors started making ridiculously low offers like $7 from this guy, and $10 from another collector. Of course the seller took my offer. I stated that I was a dealer, that I had to make a living and that a private collector should be prepared to pay more than $25. That was what touched a nerve.

One fellow had suggested to the seller that he should hold off on selling them because the catalogue values had gone up in Gibbons and that there were now lots of new plate varieties listed that could make them valuable. I pointed out that while that was indeed good advice, I could see from the photo that there were none of the scarce varieties here and that my offer stood.

It seems that both this fellow and the fellow that offered $7 were highly offended by my presence here, not to mention a few others. Here are some of their comments:

1. The guy who originally offered $10 now changed his offer to $26! after saying that at $10 he was "overpaying". 

2. I'd pay book value if mnh, NOT a dealer... and then 

I'm a better collector, as I rarely willpower sell, especially anything rare in my eyes, I disagree with the whole your worse dealing, and collecting..all about the individual, and their passions!!! 

3.  For the past 30 years most of the dealers have been the ones behind the prices in the Scott catalogs, every year mostly raising the values but hardly ever dropping them. Most of the time dealers used Scott's as a retail gauge as to what they should sell their stamps at, however when it came down as to a collector who wished to sell his collection based on a percentage there was never a dealer around. To me Scott's catalogues are a farce as well as a lot of dealers who don't offer fair market value for their collections.

Here's the point I'm trying to make. Scott doesn't need to ask the dealers what the value of a Stamp should be unless that dealer is retired. When Amos Press first bought Scott and made it a retail catalog it was supposed to be for both dealers to sell their stamps and collectors to sell at a percentage depending on the condition of the stamps. I am not against anybody making a living but let's call a spade a spade here most dealers do not offer fair market value for your collection.

My responses to these:

"I love how Philatelists on FB are so quick to malign stamp dealers - as if we provide nothing of value to the hobby. We make the markets in a global scale. Who do you think is going to buy your collection for tens of thousands when you are in a pinch and need the money today? Other collectors? Maybe. But a good dealer will give you a fair price knowing full well that it may take him up to a decade to sell the bulk of your stamps. And that is after he puts hundreds of hours in labour to identify, describe and prepare your stamps for resale. Also who is going to supply you with the exact stamps you are looking for at any given time?"

"I understand where you are coming from. I think dealers as a whole have eschewed modern material in favour of classic material because it is less labour intensive to handle. At the same time catalogue values for modern material remain high. The reason for the disconnect is that a catalogue like Scott is a Retail catalogue, and it says so right upfront. What that means is it is a collection of prices that dealers typically charge. There is no business that I know of whether it is car dealers or stamp dealers that will pay a fixed percentage of their retail price for stock. Instead it comes down to supply, demand and how much labour is required to sell the stamps. Most collectors love spending time sorting stamps, so they tend to overlook the fact that to a dealer trying to make a living, time is money. I just started my business in July and I'm in a race against time to list all my stock on E-bay. I can tell you that I work 60 hour weeks and if I'm lucky I can list about 300 items a week. I sell about 10% of what I list each month. So to make a living I have to have a massive stock. I can assure you that very few dealers are getting rich. I left a career in public accounting (I was a partner) to do this because I love stamps. They are in my blood. I felt the hobby needs good dealers to disseminate their knowledge and to that end I write two blogs."

I thought that would be the end of things, but it seems that Mr. $7 had to give me a piece of his mind:

"I need to quote mr Chris: ""My offer was based on the fact that I am a dealer and have to make a living. Any private collector wanting to purchase these should be prepared to pay more than what I offered for NH sets."" I am not sure I understood this correctly. Are you saying that you are entitled to these stamps at a lower price, simply because you a dealer who needs to make a living? If that is the case, then you sure lost a lot of respect from me,Mr Chris. It was your choice to start selling stamps to make a living out of it. Therefore don't expect someone to sell you their stamps, with room for you to make further revenue out of it. you referred yourself as a new,good,conscientious dealer who potentially could contribute a lot to the hobby... Well the comment you made,which I quoted sure was not very ethical of you. We realize you need to pay the piper at the end of the month, and also cut yourself a check from all the stamps you sell. This is totally fair in the free enterprise world we live in. But I disagree when the dealer starts setting the benchmark for the value of a stamp. It is a known fact that the Stamp Albums are the benchmark, left for interpretation. Some people but at percentage of it,some don't. 100% of the dealers I came across, when they failed to bully the seller into selling them their stamps, they started to bash the seller,and made him feel like his stamps are valued nothing,and the dealer would do them a favour by buying their stamps. I have yet to come across a good honest and ethical dealer. My motive for selling my stamps is to connect the collector with stamps he is looking for at a reasonable price. The stamps I am selling is my surplus, or stamps I am not interested in collecting. If they sell, great, if not,no big deal. I don't have to wait on the money from the stamp sales in order to pay my rent. So you could call me a "hobby seller" and I will remain that for as long as I sell my stamps. All my stamps are FOR sale, and never will be ON sale"

So basically dealers are not welcome in the hobby because we don't pay fair prices for stamps, even though my offer was four times higher than his. The ensuing exchange which I reproduce below shows that what he is really pissed off about is that dealers like me prevent collectors like him from being able to buy stamps for next to nothing and then reselling them to dealers like me for top dollar later. Somehow its all my fault and other dealers like me. Notice how much contempt and arrogance, not to mention downright belligerence there is in what he writes. 

My response:

"You completely misunderstood what I said. I'm not entitled to anything. But it is reasonable for me to expect to be able to make a living for the many hours that I spend trying to do the same thing as you - connecting collectors with stamps they want at fair prices, sharing my knowledge about stamps through my blogs and contributing to the hobby in any way I can. It's fine to be a hobby seller. There is nothing wrong with that. But what would this hobby look like if there were no professionals dedicated to supplying collectors with stamps? Your ability to amass collections would be severely hampered. What you are suggesting is that I am unethical in my expectation to earn I living through my trade, which is incredibly arrogant and offensive of you to assert. Nobody is compelled to sell to me. If they want to sell individual stamps to individual collectors taking years to sell their stamps, that is certainly their business. But if I'm going to offer to buy everything all at once, then of course I am going to expect to pay less for it because I have to carry it."

"And by the way, you aren't doing what you are doing for the good of the hobby. Don't kid yourself. You said it yourself - you only sell the stamps you don't want to keep for yourself. A dealer enters this business because they love stamps and they are in it to sell them all to other collectors. I'm sorry to hear that you have had bad experiences with the dealers you have dealt with. But it is really offensive to me to see the hostility toward dealers on Facebook that I have seen in recent months."

His response

" Mr Chris, I would like you, or any other member over here to point out to me, where did I suggest that you are being unethical to earn a living by buying and selling stamps. If you succeed, I will offer you a public apology right here. But again, you need solid proof of my accusations. All I said was that it was unethical of you to make a comment that you made, earlier in the post. I would like you to explain me the reasonability behind that comment, if you are under the impression that I misunderstood the point. So again, I invite you to explain me the sense behind the comment you made,as to why a regular collector should be prepared to pay more for the stamps that Jeff was selling,over you?. I am pretty sure I am not the only one here who would like to have that comment elaborated. As far as me not doing anything good for the hobby, how so? The stamps I don't need or want,i pass the onto a collector who is interested in them,for a minimal charge that would cover my time for processing them ( scanning,packing up,dropping at post office). Since I am not pressed to pay my bills off of the money I receive for the stamps, I can offer them for next to nothing... I rather sell a few stamps for a Dollar,than have them sit in the box doing nothing. And chances are I will end up selling them cheaper than a dealer would. Most of us here are hobby collectors. I sold lots of stamps here for the asking price I had posted. I offer volume discounts, combined shipping,I event accepted buyers to pay me in instalments. You cannot afford to do that,nor you should because you make a living out of stamps. I can and will continue to do so. The people to blame for the hostility towards dealers, I believe are the dealers themselves. At least that was the case in every single experience I had with a dealer. Yes, there are some people who show up with a shoebox full of stamps thinking, they will walk out with enough money to buy themselves a car. That is rarely the case,so it's all about how to communicate it to the seller...that their stamps are truly not worth much. As far as my ability to amass collections of stamps,without visiting the dealer is never been easier. People who have stamps to sell, bypass the dealer for the most part,because they know they will get the lowest price possible,knowing the dealer will lowball them.There is a huge market for stamps,outside of the dealer network,and this is one of the markets."

My response:

"Well you said that it was unethical of me to assert that a private collector should expect to pay more for the same stamps as a dealer. What exactly is unethical about that? A dealer trying to make a living cannot compete with a collector. I was completely upfront with Jeff about who I was and why my offer is as it was. What would have been unethical, would be for me to pretend I was a collector rather than just being upfront. MNH silver jubilee sets sell for much more than $5 each on e-bay. I never said you were not doing the hobby any good. Rather, I pointed out that your motive was to get rid of stamps you no longer want or need. There is nothing wrong with this. But I left a lucrative career because I believe that collectors need more knowledgeable dealers to service them. Just before I wrote the last comment I had a question from a collector about cutting guidelines on the 1954-67 wilding issues of Canada, which I answered. I told him what they looked like, what their significance is and what they are worth. I do this because I want to contribute to the hobby, not because I want to get rich.

His response:

"We all share different motives about what drives us to sell our stamps online. Some do it for profit,others do it to connect buyers with affordable stamps. Just because you are a dealer, this does not mean you should be expected to pay less for stamps that someone is selling. I asked you twice to explain me,and everyone else here as to why should you be expected to be charged less,than the collector. You have not given hard facts as to why you think you should be expected to pay less for something,over the average Joe. Is this because you left a lucrative career and decided to offer your knowledge to the stamp community? So because of that, you should be charged less for stamps that are being up for sale, over the average Joe? I guess if those are possible reasons in your mind, so be it. To me that does not mean anything. I have never, and never will go to a dealer to "service" my stamp collecting needs. Most of the source where I go for stamp info is user submitted content,where I contribute my share of knowledge of the stamps I specialize in. When is comes to dealers, They like to be the ones who lecture others,and not the other way around. I admire your decision to leave your career,in order to provide the stamp collecting community with quality service,Mr Chris. But unfortunately that does not give you the right to say that someone should be prepared to pay more for stamps,than you would. I reject that ideology right out."

|I  read some more of your comments,and came across this one also:""Who do you think is going to buy your collection for tens of thousands when you are in a pinch and need the money today? Other collectors? Maybe. But a good dealer will give you a fair price knowing full well that it may take him up to a decade to sell the bulk of your stamps."" The first sentence is pure arrogance,that answers your questions why collector bash dealers. The second sentence is questionable to me, because I cannot imagine the words DEALER and FAIR to ever be able to go together"

At this point I was just done. I could see there was no point in responding to this man's hatred and accusations. Some time ago I did a series of posts about narcissism and this exchange provides a very good example of a narcissistic interaction. This man makes no attempt to address anything I actually said and his strategy is to sidestep what I said and to attack me and my fellow dealers. I sure hope that this is not how most collectors see us. I don't think it is based on the fact that the 175 customers I've serviced in the past 6 months are all very happy with my service. But what if it is? There were a few people who spoke up in support of me, but most people said nothing. 

I probably shouldn't have engaged him and gotten myself all worked up. But I felt I had to defend my new profession. My point in posting all this is that as an entrepreneur you are going to face hostility from people who do not understand what you do or who do not value it. You have to be able to stand your ground and move on.

Now, let me get to those other Wilding Issue posts that I promised the readers of my other blog, and have a very happy New Year!

Monday, December 21, 2015

The Wilding Issue Listing Is Nearly Complete, QEII Material Is Selling Well and Steph Joins Me Full Time

It has been a while since my last post. I haven't had much to report as I have been frantically trying to complete the listings for the Wilding Issue that I have been working flat out on for the past month. As of Friday last week, I have broken the back of it, with the 5c value nearly complete. This just leaves me the 6c, 10c, 15c, 20c and 25c, none of which should take me that long to complete, as they are not nearly as complicated, and I don't have nearly as much of them.

I have made so many additional observations about various aspects of this issue that I did not address in the series of posts that I wrote on my other blog, that I have decided to write an additional series of posts that address the various observations I have made along the way.

What has been interesting to note is that the material from this issue is selling just as well, if not better than the classic material. I was very nervous about this for most of this month, because it was taking a few weeks after listing the material to begin seeing the sales, and my overall sales for December are down from November. However, the sales did start to pour in with one of my customers buying a staggering 59 items out of just over 1000 listed items from this issue. So as of today, I have sold roughly 6% of my total holding of this issue, which is right on track with the sales rate that was forecasted in my business plan. I actually don't want to sell it too quickly because I don't want to run out of it when I am in the middle of listing other material, since I won't have time to replenish it. What is ideal is to sell 5% of the total amount each month for the next year so that I still have 35-40% of it left when I am finished lotting all my other material. Then I can purchase more of it and build on the listings that I have already posted rather than reinventing the wheel.

This is all really encouraging because the profit margin on this type of material is much, much higher than the classic stamps. It is way more labour intensive though.

Steph has decided to leave her job and is coming to join me full time starting in January. I am optimistic that working together, we can get all the rest of my inventory listed and up for sale over the next six months. This will hopefully enable us to get the sales level up to a level where we can sustain the business and our lifestyle.

The rest of this week will be spent finishing the Wilding Issue, then I break for Christmas holidays and return back to work on December 27 or 28. Despite the success of the Elizabethan material, Steph and I have decided that I will circle back and list King Edward VII and King George V first before I move on to the 1963-1967 Cameo Issue.

Have a very merry Christmas and Happy New Year Everyone!!

Friday, December 11, 2015

Finally Some Light At The End Of The Wilding Tunnel...

This past week has been a very long and trying week, but thanks to my focus and the hard work of Steph in keeping everything functioning on the home front, I will have been able to lot all 19 plates of the 4c value, as well as all the booklets. As of today, I will have almost 750 listings for this issue - more than any dealer on the internet for sure.

Next week, I hope to complete the 5c value and then that will place me in striking position to finish the issue by Christmas.

Sales have not been too shabby either. I think I will have done roughly $400 this week, bringing me to about $500 for the month so far - not as good as last month, but not bad. What is especially encouraging is that some of those sales are from this issue that I am working on now, showing me that the modern material does indeed sell when it is properly described.

If you want to look at my listings for this issue, please click on the following link:

Friday, December 4, 2015

December Is Off To A Quiet Start As Progress Is Made on Listing The Wilding Issue

Its been a week since my last post, so I figured I had better check in with my readers and provide an update on what has been going on this week.

After a record breaking November, sales are off to a slow start for December - just around $100 in the past four days. I'm trying not to be too worried about it, but it can be a bit difficult given that I have listed over 500 lots this past week and none of them have sold. I have to keep remembering that I am playing the Long Game here. I don't expect the Elizabethan material to sell quickly as I am up against a huge prejudice in philatelic circles against modern material.

I'm amazed at what I have learned in  the past week though. I have been working on listing the plate blocks of the 1954-1967 Wilding Issue, which look like this:

I have handled hundreds if not thousands of these blocks over the last 38 years and for the longest time I never thought anything of them. Like most dealers, this stuff was just postage to me for many years. But then, I started to look at them more closely and started to notice differences in the papers used to print the stamps as well as differences in the block inscriptions themselves. If you look carefully at the above scans you will see that the left block as 2 purple dots in the margin - one at the lower left and one at the upper right. If you look at the one on the right, there is only one red dot at lower left. This is an example of what I mean. For the longest time, I never even noticed that some plate blocks had coloured dots in the margins. Then once I did, I saw a pattern: that lower right positions always had a dot in the selvage at lower left. Or do they?

This week, I saw the left block, which has the 2 dots - something I had not seen before, and would not have thought should exist. Immediately, I have become intrigued: what is the significance of these dots? Why are they here? What do they indicate? Most importantly, what combinations exist with the different plates?

This is just one example of new information that I have gleaned from listing the blocks of this issue. The other is that there definitely are differences in gum, in paper texture and in the reactions of the paper to ultraviolet light. Which of these differences are considered to be collectible is really a matter of personal preference, but certainly there is much more to this issue than many collectors realize. 

Because of the complexity, progress in listing these blocks has been slow and will likely take 2 more weeks. My real challenge is going to be raising awareness among stamp collectors of the merits of modern issues such as this as well as showing non-collectors how taking up the hobby can provide them with many hours of enjoyment. 

Friday, November 27, 2015

Sales Exceed $13,500 As Of This Week As Wildings Listings Continue and My First Neutral Feedback on E-bay

Well it had to happen sooner of later: I received my first neutral feedback ever on E-bay. After an unbroken streak of over 2,000 positive feedbacks, one customer left me a neutral. So what happened?

Well I went to check the mail yesterday and I saw that something I sold just under 2 weeks ago was returned to me due to "Incomplete Address" according to Canada Post. I was puzzled because the address looked very complete to me. So I contacted the customer to let him know that the item had been returned to me and could he please confirm his address. He replied and it turns out that his address contained a comma as in "32, 36" and the street name. I had "3236" on the envelope. The postal code was right, so in my mind the mail carrier should have been able to deliver it. I apologized profusely about what had happened and told him I would post it today. But it bothered me for the rest of the night.

So this morning I was all set to write him back and refund his money as a goodwill gesture and send him the stamps. It was a relatively small purchase and he is a new customer. When I went into my account I saw that he left me neutral feedback in French saying something to the effect that it took me 15 days to send him his stamps.

I can only surmise that people new to E-bay do not understand the effect that their feedback has on sellers. They think that it is harmless and constructive, when it is anything but. To me, and to a lot of other sellers, you just don't leave neutral or negative feedback unless your seller has been uncooperative, unresponsive, rude or it is otherwise warranted. It seems these days that if a buyer doesn't receive their merchandise right away, they think that is grounds for leaving less than positive feedback. Again I can understand that when a seller is unresponsive or does not notify a customer of the problem, but in this case I actually contacted him to tell him and put things right. I guess I should have offered him the refund right away. But at the same time, I don't want to have to make a regular habit of giving refunds to people just because their item is a few days late.

I have been hard at work trying to get through my listings of the 1954-1963 Wilding Issue, but it is taking FOREVER!. I have been working on the 2c green value all week long and expect to finish it today. But I still have the 3c, 4c, 5c, 6c, 10c, 15c, 20c and 25c still to go. Fortunately, all of them except the 4c and 5c are relatively quick to deal with, but the 4c and 5c will each take just as long as the 2c has. This is a very complicated set that has given me a whole new appreciation for these stamps.

On a good note, a new customer bought four stamps from me for $750,bringing my total sales since July 22 to just over $13,500 and my total for November to just over $5,500, which is amazing. I couldn't have imagined that I would be half way to my sales goal after just five months. It will really be interesting to see how this Elizabethan material performs. So far, it seems to sell just as well as the early material, albeit to different customers.

Wednesday, November 25, 2015

My Son is All Grown Up! Well Almost....

My son came over on Monday to start his job with me. He has been coming at 11 am because he has never been an early riser and has always been a night owl. So in that respect, he still has a bit of growing to do, but what has really impressed me so far is that he has come at the same time each day, when he said he would, and he has been keen to learn the job and to learn how to do it well.

I had him sorting out the rest of my mint Canada stock to get it ready to list when the time comes. It took him a little while to get the hang of it, but after a couple of hours he had developed his own system for sorting and he asked good questions.What was really interesting to me was that several times he commented that the skills I was asking him to use, he had never had to learn before - like looking things up alphabetically in a book. Children of his generation have grown up with search engines like Google. So they have never had to learn to look things up physically in books, or had to order information alphabetically.

He hasn't been nearly as bored with this as I thought he would be and he actually seems interested to finally understand what his old man has been interested in for so long. It has been really nice working alongside him these past two days and I am looking forward to working with him over the next two months!

Monday, November 23, 2015

Sales Top $12,750 And I Am Poised to Hire My First Employee

With November coming to a close, I am coming to the end of my 5th month as an independent entrepreneur and the prevalent feeling I have now is one of overwhelm. Sales just passed the $12,750 mark this weekend during the period from July 22 to November 22 (4 months). The Queen Elizabeth II material that I have been listing is selling just as well as the earlier material now that I am describing it to the level of detail that I am. So I am finding that between social media and daily orders, that I am not getting very much time at all on Mondays, Wednesdays and Fridays to list material, and with so much inventory still to list, it is clear that I badly need help to take the business to the next level.

With that, my sister in law's partner has expressed interest in coming to work with me part time starting in January. He used to collect stamps in his youth, so he has a comfort level in working with them. We met on Friday last week to discuss what it is I do and what I need help with. Our discussions went very well, and I can't wait for him to start. Also my son is back from the west coast for two months and will be working with me to help in the meantime. Last, but not least, it looks as though Steph and I will be working together soon as well - something that I am very much looking forward to.

I have been working on the Queen Elizabeth II issues for the last several weeks and the issue that I am working on right now is called the Wilding Issue, which is so named because the stamp designs were based on a photograph by Dorothy Wilding. The basic stamp designs are shown below:






I used to think these were very boring stamps, but after working with them for several weeks now, I have to say that they are growing on me.

I don't think  have much more to write about or report. I have been recycling menus for the past several weeks because I am so busy so no new recipes to share. Wedding plans are proceeding at a glacial pace and the business just continues to grow. I am feeling pretty optimistic, but a bit overwhelmed as I said at the beginning of this post.

I may start a series of posts about tax tips for small business until I have an updated progress report for the business or a new insight about my journey as an entrepreneur.

Until then, keep your optimism and continue to persevere towards your goals!

Thursday, November 19, 2015

What a Difference a Year Makes!

I just realized yesterday that November 18, is exactly a year ago that I returned from an international accounting conference in New Delhi, India. It just made me think about all that I have accomplished towards my life goal in this past year. I wanted to share it in order to continue to illustrate the importance of continuing to take the time to reflect upon your accomplishments and your progress when you are travelling down the long road of building your business.

At this time last year, when I was at the conference:

  • I had only just completed the financial projections for my business plan while I was there. I had not presented to investors yet and thus had no financial commitments from anyone. 
  • I had no money saved up. In fact I owed about $25,000 on my credit cards for inventory I had purchased over the previous year. The reason I had that debt was that my divorce settlement took an extra year to finalize. 
  • I had not settled with  my ex, which meant I couldn't bring any investors into the business. 
  • My Canadian blog was essentially dead because I had no posts on it since 2011 or 2012. 
  • My Nigerian blog was still getting lots of hits, but had not had any new posts in over a year. 
  • This blog did not exist yet. 
  • I only had about 1,000 items listed in my E-bay store, with nothing new having been listed since 2012. As a result my sales dwindled to less than $200 a month because E-bay dropped me to the bottom of the search ranking as a result of not posting new material. 
  • My detailed seller ratings on E-bay were only 4.9 because I was not communicating with my customers when I sent orders out. 
  • My stock was a mess. The Canadian material was all over the place in my office. Most of it was not graded, and none of the stamps had been checked with respect to the paper fluorescence and other characteristics needed to identify them properly in the listings on e-bay. 
  • I had no material at all from Gambia, Ghana, Gold Coast, Morocco Agencies of Sierra Leone. 
  • My Nigeria blog was getting about 20 page views a day.
  • I had no Google Adsense account and no advertising revenue from my blog. 
  • I was not active on either Linked-in or Google Plus. 
  • I had not fully paid my 2014 income tax and it looked like I would owe $20,000 when I filed my tax return.
  • Steph and I were eating out a lot and not consistently getting to the gym. 
Now, at this time:

  • I have received the money promised from my first investor, an in-kind contribution from my other investor and the other two investors have indicated that they are still committed. I should receive between $75,000 and $100,000 of additional funding within the next year. 
  • Sales are better than projected in my business plan. Since July 23, 2015 I have sold over $12,600. In my original plan, I was going to organize everything first and then list. I changed my mind and started a sort-list cycle in order to start generating cash flow from the start. 
  • I managed to save enough money to live on until January 2017 and through smart tax planning I managed to pay all my income tax for 2014, 2015 and 2016! So I don't have to even think about CRA until 2017. 
  • I settled with my ex-wife, paid off my credit cards completely.
  • My Paypal and Moneybookers accounts have healthy cash balances.
  • My Canadian blog receives an average of 50-60 page views a day, and there are now 49 posts published. 
  • This blog has had 82 posts with daily readership hovering around 30-40 a day. 
  • I now have 1,914 items listed in my E-bay store and because I list material almost daily, I am ranking higher in their search engine. Consequently sales are more than 10 times what they were on a monthly basis last year. 
  • My detailed seller ratings are not a solid 5 stars across the board. I communicate with each customer now every time they place an order informing them of my latest blog post. 
  • My stock is now much better organized. There are no miscellaneous collections or large lots. Everything has been sorted together and 90% of the stamps are now identified and graded, so I can list them easily. 
  • Since introducing stock scans for post 1952 material, I have hundreds of scanned images that I can use over and over again to speed up the listing process in the future. 
  • I have an orderly spreadsheet to track my inventory so that I can get an exact cost figure for each stamp that I sell, which should help immensely when it comes time to prepare the financial statements for 2016. 
  • I have managed to acquire a good base stock of Gambia, Gold Coast, Ghana, Morocco Agencies and Sierra Leone, which I can expand once I start working on Nigeria. 
  • The Nigeria blog is now getting 50+ views a day, even though there have been fewer new posts than my other blogs. I am now sharing content from this blog on Facebook. 
  • My Google Adsense account is now operational and has been for almost 2 months. I only have about $7 of ad revenue, but it is better than nothing. 
  • I now have Hootsuite, which automatically posts everything from my blogs to Linked-In and Google Plus on a daily basis, including the weekends when I am not working.
  • Steph and I eat fresh food prepared daily at home and we get to the gym as least twice a week.

I must say that that really is a lot of progress in a year. It is really easy to forget about how much progress you have made unless you force yourself to make lists like I just did above. Why? because you grow accustomed to your new normal each time you take a step forward. 

So take the time every few months to go back and do a before and after so that you can savour your successes. You will feel better and more motivated if you do. 

Tuesday, November 17, 2015

Use of Social Media in Building Your Business and What to Expect

I have posted in the past about the power and potential of social media in business, but as I am still learning how to use this to promote and build my business, I wanted to share some more of my thoughts and observations about it and how you can navigate the immense quagmire to use it to profitably build your business.

My observations, that I will discuss in detail are:

1. Social media reflects the human condition to a "T", which has many implications.
2. Social media takes a huge commitment of time.
3. Consistency of content creation is key.
4. I suspect that organic growth is more effective than paid reach.
5. Likes and pageviews are not everything.

Social Media, The Human Condition and How to Reach People

As human beings, we are naturally lazy. We want to experience maximum results for as little effort as possible. This is why we have scams and so many useless products in the world today: because we buy into the empty promise that these things will make life easier for us. Over the last 30 years, technology has made us take for granted things that were absolutely impossible 30 years ago. So because of how instant technology is, we expect instant results without thinking about the fact that human nature has not changed, and the implications stemming from the ease that the technology affords.

Social media is wonderful because for the most part it is free (for now). I don't have to pay Google to write and publish the content on this post, and I can reach, potentially millions of people with it. This is something that would have been completely impossible before the internet. If I wanted to reach millions of people 30 years ago TV would have been the only way to do it and the cost would have been in the millions of dollars.

Of course a major implication of this ease of entry is that the internet is chock full of content, and because most of it is written to garner attention in the form of likes and pageviews, most of it is of very little value. So while the potential to reach millions of people with your value proposition and business message exists, it is nowhere near as easy to achieve now as it would be if there was a monetary cost to social media. In a sense, what we have now with social media is a kind of "Tragedy of the Commons". What is that you might ask? Well it is a term traditionally used by economists to explain a situation that arises when a group of people each pursue their own self-interest with the result that everyone is worse off because of it.

So in social media, we now have automated tools that promise to save you time in using social media by automatically posting your content on a pre-determined schedule to every single social media platform that you are a member of, whether it is relevant to your audience or not. Sounds pretty good, doesn't it? Well, it would be if all that content was useful content and not just advertising and attempts to get attention. But alas it isn't. The result was that many social media platforms such as Facebook groups were filling up with spam. So what Facebook has done to combat this is that they have forced these software tools to disable these automatic posting features and to limit them to channels that you are the administrator of. So that while these tools are helpful and will save you some time, they will not deliver the time savings they promise, in my opinion.

One of the most fundamental aspects of the human condition that has never changed, that has implications for your business is this:

People don't like being sold to. People don't like ads.

Every time you watch TV how often do you skip commercials? How much do you hate having to sit through ads when you go to the movies? Do you notice how you have the option to skip ads on Youtube. How often do you actually listen to an ad when you have the option to skip past it? My guess is almost never.

This takes us to what the basic end-goal is for your use of social media to promote and build your business and what it means to you. The basic end goal is:

To reach people. To inform them that you have a product or service they want.

How do you do that if people hate ads? You do it by giving them something they want for free. What is that thing? Information.

The best way to do that on social media is to have one or both of:

  • A business Facebook page where you can post all kinds of free content, which can include links to your blogs and your business website, and
  • A blog that you regularly post information to that your audience will find useful. 
For example, in the case of my stamp business, I am posting informative articles every day to my Canadian stamp blog. As I work on stamps from the other countries that I sell I will post informative articles to these blogs as well. The great thing about a blog is that it is permanent: your readers can come back and review the information in your posts again and again. What I am doing with these posts is threefold:

  • I am educating my potential customers and creating awareness about aspects of the various stamp issues that they may not be aware of. This information will allow them to make better purchasing decisions and better selling decisions. 
  • By doing this I am slowly building a reputation as someone who is knowlegeable in my chosen field. I am also building credibility and trust. 
  • By educating collectors about the possibilities that exist with certain issues, I am expanding the potential market for that material. 
The ultimate aim of doing the above is to increase sales, but I recognize that this takes a long time to happen. The posts I am working on today may take years to yield the bulk of the sales increase that will eventually result from them. However, my experience so far is that any customer obtained this way that trusts me will come back and buy more from me than he or she would if I only used paid advertising to reach him or her. 

So I believe the first thing you need to recognize about using social media to grow your business is that the majority of your sales growth will come from organic traffic that you grow by consistently posting relevant content related to your product or service that your target customers will be interested in, while including a link to your website. In this way you are not hard-selling your customers: they can access your website if they want to, but they don't feel like they have to. Paid I think will only work if your product is something that is highly specialized, and rare. In that case, then it should be fairly effective, as your potential customers will appreciate simply being informed on where to find what they are looking for. There is certainly no reason why you can't supplement some paid advertising on Facebook with creation of organic content. But I think you are going to be disappointed if you go into using Facebook by just running paid ads. I think most people will respond to paid ads on Facebook in exactly the same way they do to ads on TV or Youtube. That leads me to my next observation.

Social Media Takes a Huge Commitment of Time

If you want to build a following of potential customers, you have to get traffic to your blog posts or your Facebook page and have to convert those readers into people who go view your website. To do this you need to be posting content on a regular basis, and the content needs to be varied. The reason of course is that people get addicted to information and you don't know when someone has the time to read your posts.

This doesn't mean that you need to post every day, but it does mean that you need to post on a regular schedule, whether that be weekly, daily or monthly. Your readers, if they like your content will start checking back for more, and if they don't find it, they won't come back to your blog. They probably won't start exploring the pages on your blog like "about the author", or "links", until they have read enough of your content to decide they like you and are curious to know more about you or your business.

Of course your posts have to be contain quality information if you are hoping to build a loyal following of customers. This means it needs to be both accurate and useful. Because of this, you are going to find that it takes a lot of time to write a blog post. For instance, I have been writing this post now for just over an hour. I had to think for a good hour before that about what I wanted to say. For many of my stamp blog posts, I have to do research, which can take an hour or more. I also have to obtain scans of stamps to provide interesting and useful images to my readers. So an average stamp blog post can take me 3 or 4 hours to write.

Once you have written your post and published it, you need to promote it by sharing it to various social media platform, such as:

  • Your timeline on Facebook.
  • Your business page on Facebook
  • Any Facebook Groups that you are a member of.
  • Linked-in
  • Google Plus
  • Pinterest
and so on.

One of the most effective ways to dramatically increase the readership of your blog is to join as many groups as you can on Facebook that you can whose members will be interested in your blog. Once you are a member, you can share your posts manually to each of those groups. As I said before, there is no automatic way to do this, but if you have a tab open with your groups list you can do all this sharing in about half an hour to an hour, depending on how many groups you are sharing to. Many of these groups have thousands or tens of thousands of members. Think about that for a minute. Technology now allows us for free, to compose an informative message in a few hours and put it in front of tens of thousands of people in a matter of hours, and it is permanent. That is a phenomenally productive use of your time, even though it may not feel like it is because you are not getting immediate sales. 

The key is to be consistent and to remember that page-views and likes are not everything. They are important, but over the long-run, you will attract readers simply by virtue of the fact that over time, Google's search algorithms will push your posts to the top of the search engine's results. The way their algorithm works, the more content you have published that is relevant to readers, the higher your search ranking. So as long as you consistently post informative, quality articles, they will contain the keywords that place you in the forefront of Google's search engine. In this way you will attract traffic from social media, but also from outside social media as well. In the end, what you are looking for are prospects who convert to customers. Not everybody - in fact very few people on Facebook who like a page will buy anything. So don't get discouraged when you see only 100 page-views on your blog in a day, when some stupid Youtube video gets a million hits. Remember that those million people clicking on that video aren't buying anything directly, although if the video is of a new music artist's song then yes, they will likely attend that artist's concert or buy the record. If your product is in some specialized niche, even though you reach is small, as long as you are consistent you are going to become a known leader in your field pretty quickly. 

I have only been blogging 5 days a week for four months now and as of today I appear at the bottom of the first page in Google's search results when "Canadian Philately" is entered into the search. "Canadian stamps" doesn't bring me up at all, because it is too general. If I enter the name of a specific stamp issue that I have posted about like "The Karsh Issue of Canada 1953-1967", I'm now 5th from the top on the first page. The first four results are for Yousuf Karsh, the photographer who inspired the set design. I'm actually the first stamp result, outranking everyone else. Why? Because I have written 5 blog posts consisting of probably 15,000 words. So the more you post, the more consistently, the closer to #1 in Google search you will appear. That is crucial because it means now that any stamp collector interested in that set that searches for this issue in Google is going to find my blog. Because they are interested, they are going to read it. Eventually they will notice that I am a stamp dealer and then if they like what I have to say, they may look for the links to my E-bay store. 

That is how it works I think. You lay the foundation today for the traffic you expect to get tomorrow. 

Monday, November 16, 2015

Limitations of Financial Statements and Sales Pass the $10,000 Mark Last Week

In my last several posts, I attempted to shed some light on what each of the basic financial statements mean as well as explaining what lenders and investors look for when they are reviewing your financial statements.

Today I want to talk a little bit about the limitations of traditional financial statements. To talk a little about what they don't tell you.

What General Purpose Financial Statements Do Not Tell You

1. The total value of the business at any given point in time.
2. Whether the business will continue to perform as it has.
3. Whether the business can survive and grow in the next 10 years, 5 years or 1 year.

General purpose financial statements are based on a historical reporting model. They tell you what the business paid for the assets that it owns, what profits it made and what its obligations are. But they won't directly give you any indication of how the business will perform in the future. In  addition to external environmental factors which are outside the control of the business and cannot be reliably predicted, the future performance is very heavily dependent on the strategic operating decisions implemented and executed by management. The general assumption a reader might make is that management will continue to operate the business in the way that it always has. However, this may not be the case, and very likely is not the case, and current disclosure standards do not require management to disclose major changes in its strategic operating decisions. The only exception to this is where management decides to discontinue a segment of the business and here special disclosures for "discontinued operations" are required.

The value of a business is often completely and dramatically different from what appears on its balance sheet. This is especially the case for businesses that have large real estate holdings that it has held for a long time. In addition, many manufacturing businesses may have specialized equipment that if properly maintained is worth just as much used today as it was when the business bought it, even though it may be fully depreciated down to zero on the financial statements. Conversely a software development business, which may have capitalized expenses of developing its products as an asset on the balance sheet may find that there is no external marketable asset.

Business valuation is a very specialized and complicated area which has its own certified professionals who practice it. As a general rule of thumb the minimum value for a business being discontinued and broken up is the fair market value of each of its individual assets, less its liabilities. However, a business that is being sold as a going-concern, that is a business that will continue to operate is usually valued at a multiple of its average normalized earnings over a period of time. The term normalized simply means that any transactions that do not reflect normal market conditions have been adjusted to reflect market conditions or removed entirely. Another possibility is that missing transactions are added. For example, take a business that is operated by its owner who does not take a salary. Well, if this business were to be sold, someone would have to be hired to operate it and that person would have to be paid a market salary. Therefore in evaluating that business, you would have to consider not the profits shown on the financial statements, but what the profit would have been if you had to hire and pay someone to run it, since that is the reality that will exist after it has been sold. Another example of normalization comes about where the owners have taken unusually large bonuses out of the business in past years. These bonuses have the effect of artificially depressing profits, which in reality are much higher. Thus in evaluating a business like that, you would add the bonuses back to the net income in determining the average earnings.

The multiple to be applied to annual average earnings is what business valuators are paid to determine. A lot of factors go into it, some of which are specific to the industry, some of which are specific to the point in its life cycle the business is at, and still others are specific to the management team. A good general rule of thumb though for many business is a multiple between 3 times and 5 times annual earnings.

So in a nutshell, the financial statements will tell you whether a business was solvent at year end, whether it performed profitably and generated sufficient cash flows to sustain the business during the period, while giving some clues as to whether it is adequately investing in its future growth. The past, in the absence of more detailed information, is usually the best predictor of the future, but what you really need to look at if you want to know how a business is expected to perform in the future is a set of projections.

So that concludes my discussion of financial statements.

On another note, I am very pleased to report that my total sales since July 23 are now over $10,000. So that is now an average of $2,500 a month. In reality though more than half of that total is this month alone, and today is the 16th. So my sales are growing daily as I list more material and reach more collectors with social media. I launched my Facebook page last week "Pristine Canadian and British West African Stamps and so far, I have managed to obtain over 200 likes in just over 2 weeks. Not bad! The link to my page is below, if you want to check it out:

Friday, November 13, 2015

What do My Financial Statements Mean? The Notes to the Financial Statements

My last three posts dealt with each of the three primary financial statements: the balance sheet, the income statement and the cash flow statement. Today's post will look at what in my opinion are often overlooked and ignored by many business owners: the notes.

One of the reasons why the notes are ignored so often is that business owners do not understand most of them and do not obtain useful information from them. It is indeed an unfortunate reality that the professional accounting standards often do not require disclosure of the information that would be most helpful to a user analyzing the financial statements. Most professional accountants prepare financial statements either for a specific user such as the bank manager or for use in filing tax returns. Usually in the latter case there are no notes, as they are not required for financial statements prepared on a Notice to Reader basis. In the former case, where the financial statements are prepared on an audited or Review Engagement basis, notes usually are prepared, but only  the minimum required disclosures are usually included.

So What Do The Notes Contain And Why Are They Important?

The notes contain three basic categories of information:

  • They explain the accounting policies being used to measure and report transactions and thus the entire basis of presentation.
  • They provide additional detail of items reported in the financial statements.
  • They provide qualitative information that would be considered important to a reader that cannot be adequately captured in the financial statements.
The first note is always the accounting policies note, and it is this note that is usually completely ignored by most business owners. Although business owners really should be involved in deciding what policies make the most sense for their particular business, for many small businesses this task is left to the accountant. Another thing that often happens is an accountant will acquire the client from another accountant and will simply follow whatever policies were used in the past. Consequently what can happen is that inappropriate accounting policies that do not reflect the economic reality of the business get used for years, resulting in statements that while useful for preparing the annual tax return, are of little more value. 

I'm not going to bore you with all the different accounting policies here, as your accountant can have that discussion with you. Instead, I want to alert you to the questions you should consider and answer for your accountant so that he or she can ensure that the appropriate policies are being used from the start:

  • When you decide to make an allowance for uncollectible accounts receivable, do you look at specific accounts, or do you provide a blanket, estimated allowance based on historical experience, like 1% of all accounts for example?
  • Does your inventory consist of individually identifiable, distinct units, or are they a large quantity of identical items?
  • When you sell inventory, what sells first? The oldest units you bought? The latest ones? Can't tell?
  • For each major category of asset, such as office equipment, premises, computer systems, software etc., how many years do you expect that the business will use the asset before it has to be upgraded or replaced?
  • For intangible, intellectual property assets, how long do you expect that they will have value to the business?
  • At what point do you consider a sale to have taken place? Is it when you deliver goods or render services, is it when you receive payment? 
  • For long-term construction or manufacturing contracts, how do you record the revenue during the contract? Do you attempt to determine the progress of the contract at year end and attempt to estimate the proportion of the revenue earned to that point? Or do you wait until the contract has been completed?
  • Do you make an estimate of inventory that for whatever reason will not sell for full price, or will not sell at all? How do you determine that? Do you look at a complete list of inventory and consider each item, or do you provide a blanket allowance based on experience?
Knowing the answers to the above will help your accountant ensure that your financial statements are the most meaningful they can be. 

Most of the rest of the notes to the financial statements are usually additional details or breakdowns of items contained in either the balance sheet, income statement or cash flow statement such as:

  • Breakdown of inventory between raw materials, work-in-progress and finished goods, along with the allowance for obsolete inventory. 
  • Breakdown of which assets are included in property, plant and equipment - their original cost, the depreciation (amortization) taken to date and the remaining net book value.
  • Breakdown of assets acquired on long-term lease showing similar information.
  • Details of bank credit lines obtained whether used or not, including all significant terms and conditions and a statement as to whether those conditions have been complied with. 
  • Details of any warranty arrangements offered to customers.
  • Details of long-term bank loans other loans or lease obligations.
  • Details of issued shares and authorized but not issued shares.
  • Details of major components of revenue.
  • Details of sales made to or purchases made from related companies
  • Details of what makes up the income tax expense and how the income taxes shown on the financial statements reconciles to the tax return.
Most of these are understandable to most readers except for the last one. The last note is required under the professional standards in Canada. The reason it is required is that in some cases there is a significant difference between a company's taxable income and the income shown on the financial statements, due to special tax write-offs that the company is eligible for. If a reader were to simply apply the known tax rate to the financial statement income, the expense number they would calculate would be different from the expense shown on the financial statements, which of course would be confusing. So this note is meant to clear up the confusion by explaining what the differences are. 

The third category of information disclosure is qualitative information that is important to a reader that cannot be adequately disclosed in the statements. Usually this is related to events that have taken place after the date of the financial statements that could have a significant impact on the business, such as:

  • Acquisition of a business division or merger with another business.
  • Loss or acquisition of a major customer or key supplier.
  • A catastrophe that results in the destruction of corporate property.
  • A lawsuit that has been filed against the business. 
Occasionally, the disclosure can be similar to the above, but related to events that occurred before the date of the financial statements that was still unresolved as of that date. 

Most business owners, in my experience are reluctant to provide these disclosures. However, they are essential if you are going to provide financial statements to external parties. I'm also of the belief that many of them do not paint the negative picture that many owners think: things happen all the time in business, and the disclosure of the above will not necessarily hurt the business, although it may lead to questions from readers. 

That concludes my discussion of financial statements and what they mean. I hope you all found it useful. 

Have a great weekend everyone!

Thursday, November 12, 2015

What do My Financial Statements Mean? - The Cash Flow Statement

Image result for cash flow statement

The cash flow statement is probably the most important of your three primary financial statements. However, despite this it is probably the least understood of the three. Understanding what the line items on this statement mean and the overall significance of the numeric totals will enable you to spot many situations where a business is either in trouble, or could find itself in trouble in the future.

So What is the Purpose of the Statement? What Does it Mean?

The cash flow statement tells you whether the business is capable of generating enough cash from its operations to sustain the business. This is not the same thing as profit. Many times you will hear about profitable businesses that expand quickly and go bankrupt. The reason is insufficient cash flow to meet their obligations as they come due.

Actually, the statement tells you much more than that. It tells you what the net change was in the cash balance of the business - an increase or decrease. More importantly, it tells how how that increase or decrease came about, by disclosing information about the cash flows in three sections:

1. The operating section
2. The investing section
3. The financing section

The operating section is all about the day to day operations of the business. The cash flow statement will always contain a subtotal showing you how much cash was either generated by or used in operations. Except for a startup business, a healthy mature business should always have positive cash from operations. This means that the day to day operations are generating enough cash to pay the obligations of the business as they come due without having to resort to drastic measures like selling off assets or borrowing money.

The investing section contains transactions of a long-term capital nature that are outside the normal operations of the business and that occur infrequently such as buying new equipment or selling off old equipment. Buying or selling of marketable securities held over the long-term would also be disclosed in this section.

The financing section contains information about long-term capital transactions involving either shareholders or long-term creditors.

Understanding The Operating Section

The operating section is prepared in one of two ways by your accountant. Each way will result in different information being shown:

1. The Direct Method.

The direct method will look almost like a repeat of your income statement, except that it will not include any non-cash items. The amounts shown will also reflect the cash impact of increasesor decreases in your current assets and liabilities as explained below.

2. The Indirect Method

This the most common method used now. It starts with your net income or loss figure from your income statement and then adjusts this number for two major classes of items:

  • It removes any items that are non-cash in nature, such as gains and losses as well as amortization (depreciation) of capital assets. 
  • It adds or subtracts the cash flow impact of increases or decreases in current assets and liabilities. 
It is this second group of adjustments that most people struggle with. Have you ever heard someone say "I made a lot of money, but it's all tied up in inventory.". If you have, then this is what that refers to. Whenever you acquire additional assets or pay off additional obligations, you are using cash. Conversely, when you use up assets or take on additional obligations you acquire cash. The reason why this confuses people is because often an acquisition of cash or a use of cash is not accompanied by an actual cash payment. Often it is accompanied by a forgone opportunity to collect cash or an acquired opportunity to defer a payment that otherwise would have been made. For the purposes of the cash flow statement those forgone opportunities or acquired opportunities are treated as uses of and sources of cash. 

So in this second section, adjustments are made to add or subtract the cash flow effect of changes in the ending balances of all your current assets or liabilities, as listed on your balance sheet with those same balances in the prior year. 

After all these adjustments have been made, you will have a figure for total cash flow from operations. As I said above, this amount should be positive for mature businesses and as long as there has not been significant financing or investing activity taking place, it should be relatively stable from one period to the next. 

So a lender or prospective investor will be paying very close attention to this number, and it it is too low, they will probably turn down your requests for financing. 

How Do I Increase This Number?

If your cash flow from operations is low, there are steps you can consider taking that will improve it. These steps include:

1. Reducing your accounts receivable, either by being more aggressive in your collection practices or by reducing your payment terms. 

2. Reducing the amount of inventory carried by using a just-in-time ordering system and or drop-shipping. 

3. Taking as long as possible to pay suppliers without damaging your relationship with them. 

Those three things, done consistently over a period of a year can have a huge impact on the cash flow position of a business over than same period. 

Understanding the Investing Section

The investing section for most expanding businesses will show a negative overall position because the business is spending cash on investing in its expansion. A positive cash flow number in this section usually means that assets or investments are being sold off. This will usually trigger the curiosity of an astute reader, who will want to know why the business is doing this so that they can understand how this is likely to affect the future cash flow from operations. 

For example if there are large negative balances in this section then it means that the business is expanding, which in turn should lead to growth in cash from operations, although it may take 2 or three fiscal years for most of this growth to show up. A business that is able to do this without borrowing money will be able to hang on to most of this growth. Although an astute reader is going to look carefully at the next section to see how this expansion was funded. 

Understanding the Financing Section

The financing section for most mature, stable businesses will show moderate to low outflows as the business makes dividend payments to its owners. A business that has debt will show its annual repayments here. So most existing and lenders will immediately compare the sum of the repayments made with the cash from operations to see if the business is at least generating enough cash to make these repayments. 

Large positive inflows in this section mean that the business has either borrowed more money or has obtained additional investment from its owners. 

Like the investing section, this section can give you some clues as to what to expect in the future. If you see large inflows that have come from debt, then you know that greater repayments will be required in the future periods which will mean more negative outflows in this section in future periods. This in turn means that the cash flow from operations will have to be higher than it is now if the business is to stay afloat. Knowing this will allow you to focus your line of inquiry if you are looking at a company to invest in. On the other hand if you see a significant amount of debt repayment, then that is an indication that less repayment will be required in the future, and thus cash flow from operations can decrease a bit without threatening the future viability of the business.

Red Flags to Watch For

As I have stated in this post there is a way that the cash flow statement should look for certain businesses  depending on where they are in their life cycle. However, the following should alert you that potential problems could be looming on the horizon and that more investigation is necessary:

1. Large negative cash from operations in the current period, or smaller negative cash from operations over 2 or more reporting periods.

2. Large positive cash inflow from sale of assets or investments without a compelling reason as to why, especially if it appears that the sale was undertaken to cover a large operating shortfall. 

3. Large positive cash inflow from the acquisition of new financing that is either not currently sitting in cash on hand, or is not accompanied by an equivalent negative outflow in the investing section. In this case this means that the money has either been paid out to owners or it is being used to pay off existing debt. This isn't necessarily bad, but it could be if the income statement indicates that the business is losing money.

This concludes my post about the three primary financial statements. Tomorrow's post will look at the notes that often accompany the financial statements that your accountant prepares for you.