Hi and welcome to Module 4 of the fundamentals of finance. My name is Marla Null. In this module, we're going to be talking about controlling the growth of our business through cash flow and ratios. Such exciting stuff. Welcome to Module 4. I look forward to you enjoying this class. Thank you. Welcome to Module 4 of the fundamentals of finance. I'm going to talk about growing the business with expense controls in this module. When you're growing a business, lot of times business owners forget to monitor the expenses. When the expenses grow more than your revenues, that's a bit problematic for a business. We want to make sure that as we are growing a business, we're managing our expenses and managing our cash flow so that we can generate an increase in profits that is consistent with the increase in revenue. Some of what we can look at is using ratios to help us manage our expenses and our cost of goods sold which are the expenses that are directly related to the item that we're selling. There are a lot of issues that crop up when you're growing a business, cash being one of them. A lot of business owners underestimate how much cash they need when they're running their business and run out of cash. Operational issues, as you grow the business it becomes harder to control all of the operations. A business owner needs to determine how to best manage the operations as they grow and designate people responsible for helping that process. Speaking of people, the more people you have, the more people problems you will have. It's part of running a business and managing the people problems is an art and very important to making sure your business runs smoothly. Depending on your state, there are a lot of compliance issues. Depending upon the business, there might be even more compliance issues. Making sure that you have a good consultant or attorney to help you manage the compliance issues is something I want to talk about. One of the financial statements that is frequently ignored is statement of cash flow. We can use the statement of cash flow to make sure that we are operating so that our business is sustainable. When I say that, if I look at my statement of cash flow, I can look at the cash flow from operations. If it's positive, then good. But sometimes people don't notice that they actually have negative cash flow from their statement of operations, from their cash flow and the component considered operations. That is not sustainable. If you're running a business and cash flow from operations is negative on a regular basis that is typically not a sustainable business. The statement of cash flow, it comes after the balance sheet and income statement. The cash flow is divided into three sections: operations, investing, and financing. Operations is the normal business activities, so your revenues, less your expenses, and then any changes in your current assets and liabilities. That affects your operations or your cash flow from operations. We want that to be positive so that we can maintain a sustainable business. Investing is the purchase or sale of any fixed asset or any long-term asset. Investing is from the sale of property or purchasing property or lending money to another entity. Sometimes I've seen a business lending money to another business. That's investing. But financing is cash from shareholders, dividends paid, or borrowing from creditors, or repayment of a loan to creditors. Financing is generated from the equity part of the balance sheet and from the long-term liability part of the balance sheet. I want to monitor my net cash flow. Net cash flow added to the beginning cash should equal the ending cash on the balance sheet. Such an easy statement to verify that it's accurate. Here is an example, the statement of cash flow, and I start with my net income. I add depreciation. Why do I add depreciation? Here there is no depreciation, but I add depreciation because it is a non cash expense item. I get total then I reflect the changes in accounts receivable, accounts payable, any current assets, current liabilities, and that is how I get net cash provided by operating activities. If I had purchased any long-term assets or sold any long-term assets, they would be reflected in the cash flow from investing activities in this example, I don't have that. But the next section, the cash flow, from financing activities, I show that the owner actually put money into the business paid for stock $500. That is cash flow from financing activities. If I add all of these things together, I get a total of $600. I had zero cash at the beginning of the period because we were just starting this business, $600 is the cash at the end of the period. I can look at my balance sheet, see if that agrees with my balance sheet, to know if my statement of cash flow is correct. Many business owners really don't understand their financial statements, and how the cash flow impacts the business, and how detrimental running out of cash is to the business. When we start generating revenue, we might have great celebration, we get a lot of revenues in, we hire people and then people start working. I bill for the revenues, but I have to wait to get paid for the billing for the revenue. But guess what, I have to pay my people before I'm actually going to collect the money that I billed for. This is something that a lot of owners of businesses don't realize it's going to happen. That's why it's good to forecast your cash flow just so you can see how the money comes in and the money goes out. The money may go out before the money comes in for the revenue that you're earning, so particularly in some states, it's really critical to make sure you pay your employees on a timely basis. When I'm working with a business owner, I always emphasize the importance of reserves and need to make sure I have cash to cover my costs that occur prior to my getting the revenue, prior to receiving the cash from my billing. When I say reserves, I talk about six months of reserves and that's not easy to get to, but something worth working for, so I recommend that to any business owner. A lot of books will tell you you need at least 2-3 months, I say six months. Then credit line. Work out an arrangement with your bank, it does cost some money to have a credit line, but you don't need to use it. You can pay the money to have your credit line, it's your safety net. Credit lines can be arranged with good business banks. I can't emphasize enough the importance of having a bank that will work with you and be your partner in your business. You may want to bring a partner into the business to help with the cash flow. This is not necessarily a bad thing, I've talked to many business owners who had a partner when they first started the business, made an arrangement to buy the partner, it worked well to get business started because it's hard to get started. That may be a good viable way to get going and growing in your business. What are some of the operational issues that you're going to see? It could be that you can't have your fingers on everything all the time, and so best to see if you can pinpoint a person in your organization that can be a COO; Chief Operating Officer, somebody that can manage the regular day-to-day activities of the business because you're going to be starting to work on the business and not in the business. If you have somebody that helps with the operations, then that will help you manage the business a little bit better. When I say operations, whether it's manufacturing or service, as you grow the business controlling the operations becomes a little more challenging, so putting procedures in place becomes more critical than ever. You need to make sure that you have policies and procedures on how to do every single operation in your business and manage those policies and procedures. Make sure that your managers also look to those policies and procedures as something important in what you do. Also, your supply chain, you need more of the product, you need more supplies than ever. Are you going to be able to get those supplies and are they going to be the quality that you want from your original supplier? That's always a question when a business is growing, if your suppliers aren't able to handle you, sometimes you need to change suppliers. Watch for that in running your business and also the right people, particularly in a service business. Are you hiring the right people and do you have good processes for hiring the right people? I always encourage business owners to look at outsourcing as you're growing. Because there may be some simple components of your business that you can outsource like HR. I used an HR advisor in addition to my HR coordinator when I was running a business, it worked out really very well for us. Or fractional CFO, when you're really small, you can't afford a full-fledged CFO, so fractional CFO, fractional CEO, may be that fast way to start at with ramping up the business. When you start a business, most entrepreneurs try to do everything themselves. Understandably so you can't afford to hire people to do all of the components of the business. But as you grow, look at what you need to hire and what is the most important component to your business? For every business its a little bit different, but if you look at and make an org chart, look at where your deficiencies are, where you're struggling the most, that's the hole you need to fill first. CFO and boy, that can be an accounting manager or controller, there are a lot of different terminologies depending upon the size of the business. But have somebody that can help you with understanding your financials. Be careful not to put too much credence in the CFO position or too much ability in the CFO position. I have a client who hired a CFO and did not have the accounting controls, and the CFO stole about $130,000 from this business owner in a very short order. Make sure that you're careful on who you hire and how you manage them. Your CPA can help you with internal controls that are necessary. I'd say a lot of businesses really need a COO to get started to make sure that the business operates as it's supposed to. That you provide whatever product or whatever service your customers expect at the level that you promise. Because the worst thing that you can do is not provide the service or product and lose business because that will start things going in the wrong direction. I think the CEO is typically the most diverse higher for a lot of smaller businesses. Then you may look at an accounting person, HR is definitely something that can be outsourced for a short period of time. Then something when you get to a certain number of people, 25, 50, you need to bring HR in house. CIO, you've got to be careful about this position because I've heard of people getting so burned from an internal person. You need to have again really good controls because they're working in something that many of us are not familiar with. Are the firewalls sufficient, or your backups sufficient? Do you have protection as a business owner? A lot of different reasons to watch it. Then CMO, I do think as a good business owner will need to keep their finger on this sales on a regular basis, because a good salesperson might be able to steal your business. A good business owner should make sure that you keep your thumb on the pulse of the revenue. But these are some of the positions that you may want to eventually have when you're running a business. When you develop your org chart, the CEO goes at the top of the org chart. It may not be you if you're not good with the detail and the day-to-day management of your staff, maybe you want to hire a CEO. Again, not an easy position to fill, so you might look at hiring a consultant before you actually bring them into your business. You can try them out before you hire them. But some business owners literally cannot run their own businesses so they get a CEO. Top of the org chart, and then the org chart branches out from there to the CFO, depends on HR where that goes the COO, CMO, CIO. I want to emphasize also as we're looking at the org chart, most people do not effectively manage more than 5-7 direct reports. Good business practice is to break it down so that one person including yourself, is not managing more than 5-7 direct reports. Compliance issues change as your business changes, and this is affecting state and federal laws, so you need to be aware of what these changes could be. If your number of employees goes from five employees to 20 employees, you could see some changes in your compliance requirements. Same with that amount of revenue. If your revenue goes from 500,000 to 1.5 million, you might have different compliance issues, and same with tax. You definitely need to be aware of the payment requirements as far as payroll taxes, income taxes, with other taxes your business may be subjected to. These are things that your attorney or a CPA can help you with, but your compliance issues change as your business grows. One of the ways to make sure we control expenses is to manage our salaries. We need to manage our salaries. A lot of times a business owner will give raises to employees because they've been good employees. This is all well and good, but sometimes you end up with an employee that's getting paid significantly more than what their job responsibility reflects. You can use salary surveys that are available for your state or for your region to give you what a normal salary would be for, say, a clerical position or manufacturing type of a position. There are usually some pretty good description so you can get an idea of what your employee's salary should be, or what your employee's job function is in relation to the salaries. Good idea to make sure that you know what a good salary is for a particular job function. I found that employees typically respect that. Also at your salary is in your business. I have had situations where overtime has gotten out of control because the direct supervisor was not paying attention to the overtime as it was creeping up, and before you know, you're paying a huge amount in overtime, where maybe you could have saved money by adding an employee versus paying overtime. Managing your controls or managing your people costs is such an important part of running a business. Also the timing on when you give increases, you make sure you give employer reviews on a regular basis. Because it is a way of making sure that people understand what they're getting paid and why they're getting paid whatever they're getting paid. Now if I had an employee that wanted an increase, I would let the employee know how they can get an increase if it was not possible for them to get an increase in their particular job. If they took on additional responsibilities or change their job description, then they could get an additional amount of pay. Again, people understand this. If you do more, you can get more. Usually, if an employee goes from the job function to a managerial function, they would get an increase in pay. Not everybody is willing to do this, but that is definitely something that you can point to for an employee to aspire to get more pay. When you're looking to control your expenses, you want to look at the financial statements and look for the largest 1, 2, 3 expenses on your financial statements. You can tell those are generally by a percent to revenue, which is a vertical analysis. So percent to revenue can tell you what the three largest expenses are on your financial statements. They may be materials for the product that you're making, or they may be some other support expense. If you're in a service industry, it would be salaries, but there might be something below salaries, like your health insurance or some other insurance expense that you can control. So really depends upon the industry and the product or service that you're selling. If you have materials as a large expense on your financial statements, look for some waste in your manufacturing process, or look at your suppliers. Can you get suppliers that provide better pricing? Have you shopped the suppliers most recently and found that you have a supplier that's reliable, that has better pricing? Make sure, of course, that the supplier is reliable. If you have a support expense, then look to your industry and see what others in your industry do to control those expenses. I always recommend partnering with your industry association and a lot of times in industry will have several associations that you can participate in to get information about what others in your industry are doing to control expenses. It's amazing what your competitors will provide as far as information is concerned, just out with pride or ego. I don't know what it is, but I've always found that my competitors are willing to share information. Once we sit down and have lunch together, then they can talk about some of the ways that they control expenses. Also your vendors are amazing at providing information if you have a good relationship with your vendors. All of these ways can help you look to the top three expenses on your financial statements with ways to control those expenses, to manage those expenses, and keep them as low as possible. Another way to control my expenses is to look at industry reports so I can see what my competitors are paying as a percentage for certain types of expenses. I don't want to look at dollar amounts, but I would look at it at a percentage that expense to revenue to see what my competitors are paying. I also want to look at comparing year-to-year. I'm paying more in one particular expense as a percent from the previous year. You can look at a number of different ratio comparisons, vertical or horizontal. Vertical, I'm comparing my expenses to my revenues and so that's considered vertical analysis. Horizontal analysis, I'm comparing my expenses to the previous month or the previous year. Both of those methods are easy to do with most accounting software. You can run reports like this and what I look for is a percentage that changes significantly, good or bad. Because you might see a percentage that changes in a positive way, but something else is going wrong. It's not necessarily a good thing that your percentages are improving unless you know why. Using ratios is a good tool. I use gross profit ratio by watching my trending for my percentage of gross profit. As my revenues changed, I would put my revenue numbers and a month to month to month grid and my gross profit percentage. My gross profit numbers may go up, but my gross profit percentage may go down and if that is happening, I need to investigate and figure out why it very quickly. This did happen to me in business and I was able to catch it pretty quickly and make some changes so that it did not continue to happen for the rest of the year. I always track profitabilities, so important: monthly, quarterly, and annually, and when I mean track, I mean I would have a spreadsheet with the key numbers on a spreadsheet, which would be revenue, gross profit percentage, and my net profit number, and the net profit percentage so that I could track and watch them increase or decrease depending upon how I was growing my business. I know so many business owners that were so focused on growing their revenue that they didn't realize that they were actually decreasing their profitability. Watching this on a month by month basis or on a quarterly basis is very helpful to a business owner. I know that you need to look at the type of revenue. I encourage business owners to segregate if they have maybe three different types of revenue generations, that they separate those into their individual financial statements so they can see where they are the most profitable. I don't want to continue growing revenues in an area where my gross profit percentage is 10 percent versus an area where my gross profit percentage is 60 or 70 percent. I want to grow the area where my gross profit, which is my revenue, less my cost of goods sold, that's my gross profit. I want to grow my gross profit. I do that by selling or focusing on the revenue item that provides me with the most gross profit. There may be a strategic reason why I would do otherwise. However, if there is no strategic reason, I really want to drive whatever helps improve my gross profit. Ratios are such a great tool for our business owner. This particularly if a business owner does not want to look at the financial statements in detail every month, then get your accounting department to produce ratio reports so you can at least look at those. That gives you a very quick snapshot of what is going on as far as accounts receivable turnover, tells you how good your cash flow is going to be, how fast are you collecting those billings or is something going wrong so that you're not collecting the cash as quickly as you thought you should or could. That's a ratio you can use. There are other ratios that are just really quick and easy for a business owner to look at. If you don't want to look at the financial statements, then let's help you figure out which ratios are important to your business so that you can look at those instead. The use of ratios is really helpful when you're running a business. Even if you look at all the financial statements and the numbers, sometimes the ratios tell you just a little bit more. We talked about the gross profit ratio, that's your revenue less your cost of goods sold equals your gross profit. Then the gross profit divided by revenue is your gross profit ratio. I want to trend my gross profit ratio and make sure that it's staying consistent as I grow my revenues. You may want to watch this. If you're trying to grow your revenues at the expense of your gross profit ratio, if you're doing this strategically, I certainly understand that, but that's not something that you probably want it can sustain. You want to make sure that you maintain a good gross profit ratio. An accounts receivable turnover, if you have good accounts receivable, that's sales revenue divided by average accounts receivable. You want to make sure that you are collecting the money that you have billed your clients and believe me, they will notice if you're not paying attention to collecting your accounts receivable. If you have accounts receivable that are going past 30 days, then maybe you want to call those customers. If the accounts receivable is going past 90 days, that could be a real problem. Every industry is a little bit different. I had a subcontractor for a client and the subcontractor would bill and then the accounts receivable would go out 60 days because the subcontractor had to wait for the contractor to actually collect the money. That subcontractor did not typically receive the money in 30 days. But in other industries, many times you are going to receive the money in 30 or 60 days. This general rule, the longer your accounts receivable age, the less likely you will be to collect that money. Your accounts receivable is cash that is owed to you. You want to make sure that you collect it. An inventory turnover is another ratio that is one to watch particularly if you're a retail business, it is your cost of goods sold divided by average inventory. In this situation, it's bad to have too much inventory because that's cash that you're using as inventory. It's bad to have too little inventory because then you're not able to provide your customer with their demands or the product that they are wanting. This is such a problem for so many business owners. I remember I talked to one business owner that was just anguishing over cash flow. Stupid question, what keeps you up at night? This business owner, it was cash flow. When this business owner gave me a tour of the warehouse, I knew what the revenues were. There were just shelves and shelves, and shelves of inventory. I understood after a very simple tour of the warehouse, why this business owner was having such a challenge with cash-flow because she had so much inventory that a lot of the cash is there sitting on the shelves in the form of inventory. That can be so hurtful for a business to have too much inventory. Watch the inventory turnover. A lot of times in retail, it will be may be four times, once for every season. Every industry is a little different. Home Depot, the inventory is going to be a bit different from a retail inventory, but check the industry average for the inventory turnover so you can see what is acceptable and what is not acceptable as far as inventory turnover. Here are some other ratios that you want to consider. Return on equity is net income divided by average stockholders equity. As we're investing in our business, we want to make sure that we're getting a better return than if we were not running a business at all. Of course, when you first start a business, a lot of businesses lose money. But as you go along and you're in business for awhile, this number should be better than if I just had my cash in a money market account or a CD. Return on equity is something that we measure to make sure that our business is still generating the profitability that we expect. Profit margin, that's net profit without interest divided by revenue. Again, a number that we track because I want it to be consistent. As my revenue goes up, I want my profit margin to be consistent on a monthly basis or a quarterly basis. Current ratio is another ratio, current assets over current liabilities. This is an indicator of liquidity and it's a ratio a lot of times that banks will use. If you have a bank loan, the bank may specify that you need to have a current ratio in excess of one. A lot of business owners don't realize that this is in their loan docks and are a little bit careless about this number. If you are too careless, the bank could actually come and demand the loan to be repaid right away. You want to watch current ratio. Let me give you an example of something that could happen. Say my current ratio is good, I decide to go out and buy a large piece of equipment. Well, that large piece of equipment would be in my fixed assets, that's taking out some money from my current assets, and I could because of that, have a current ratio that's less than one, and make my business vulnerable to my bank loan being recalled. Something that a business owner should watch. A quick ratio is even a better indicator of liquidity because it's cash short-term securities accounts receivable divided by current liabilities. What is out of there is inventory because we don't always know how quickly we can move inventory. The quick ratio really tells me that I can pay my current liabilities. If my quick ratio is less than one, then that's something I really need to watch and be concerned about. The gross profit ratios, critical ratio for most businesses. Again, the gross profit is the revenue less cost of goods sold. I get the gross profit ratio by taking the gross profit divided by revenue. I can track my gross profit on a monthly basis or a quarterly basis. It is the percentage of each sales dollar left after I sell whatever I'm selling or producing. It can tell me how profitable the revenue is, and again, if I am selling three different types of products, I need to look at the gross profit ratio for each product that I'm selling. I had a client that was working with a number of clients, and when I looked at some of the jobs that this client was working on, the gross profit ratio was very low. If you take the gross profit ratio and reduce it by the general and administrative expenses, she was losing money and didn't realize it. Probably to this day does not really understand gross profit. The gross profit that you're looking for should be enough to cover your general and administrative expenses. Do not grow your revenue at the expense of your gross profit ratio. That's a critical number to watch and something that you need to guard. You want to look at your industry to see what a healthy gross profit ratio is, and this may change from time to time. I'm working with a client that's in an industry that's really gotten tight. The pressure to keep the revenue numbers or their billing their clients down is tremendous because there's so many competitors in the market. But their employee expenses, it's a service industry, so what they're paying their employee for every hour that their billing is going up. This is crunching the gross profit ratio. Well, we'll have to do this for a period of time until things level off because of things that have happened in the economy. Something that is bearable for a short period of time, but certainly not something that you want to sustain and the business is not going to be sustained if this is something that goes down for a long period of time. Accounts receivable turnover, how many times do you collect your accounts receivable during a period or how quickly do you collect your accounts receivable? Is it 30 days, 45 days, 60 days? Lot of businesses are looking at attempting to collect accounts receivable within 30 days and certainly within 45 days. Then if it gets to 60 days, that's not so good because this is going to effect your cash that your customers are keeping. I had individual client who did not notice that the accounts receivable ratio or turnover was going down. Because his accounts receivable person had changed, and so nobody told the new person the importance of calling on the billing if the bills have been received in 30 days. For some reason the customers noticed and they did not pay as quickly, as efficiently as they had been and so accounts receivable was going ah. When we pointed this out to my client, they fixed this problem very quickly. But if this is too much longer, the longer your accounts receivable go out as far as days or less likely they are to be collected. Remember, cash is king, we want to make sure that we collect accounts receivable as quickly as we can. Now, some businesses offer a discount if the customers pay within 10 days. That's an effective way of managing your accounts receivable. You put on your invoice 2 net 10, which shows that customer they can get a two percent discount if they pay in 10 days, or maybe a five percent discount, as a big discount. But the two percent discount can add up, so some people that are good money managers will pay, because they're going to get a discount, even if it's just two percent by paying within 10 days. Your accounting staff should be able to manage your accounts receivable and your accounts receivable turnover. But if there is a turnover in your accounting staff, this may reflect your turnover in your accounts receivable. This can hurt the business if it's not something that is being monitored on a regular basis. Inventory turnover is the number of times that you turn your inventory over during a period. Retail, you might turn your inventory over four times a year. Seasonally, you would have, summer, winter, spring, fall lines and in something like hardware or Home Depot or Lowe's, turnover is a different issue. But if your turnover is low, then maybe you're carrying things in your store that aren't selling. This again is cash that's sitting on the shelf. If you have inventory that hasn't sold in a certain period of time, you know that it should have sold, then you should look to getting rid of that inventory even if it's at a discounted rate. There are sometimes businesses out there that will buy a whole shelf lot of inventory at a discounted rate. But maybe it's more than what you paid for the product, gives you your shelf space and gives you the cash. Then you can put something in that shelf space that will sell. Managing your inventory turnover is important to businesses, particularly retail businesses. Too much inventory, not good, too little inventory, not good. Inventory management might be something that you can determine from your industry. What is a good inventory turnover and how close are you to the inventory average. Return on equity tells me how good my investment is from my business. If I can earn more money in a safe investment, then it's silly to be running a business. I guess, you could be doing this for your ego, but otherwise, it does not make sense to be running a business if you have a poor return on equity, so that you would want your return on equity to exceed what you can get as far as a bank, a CD or money market or whatever. Fixed income that's fairly secure. You want to look at what other industries are getting. If there is a challenge in the industry, ups and downs, then this is a little bit of an exception. Industry sometimes have struggles. Hopefully it's not the end of the industry, but industries do have struggles. I would take into account as a fluctuation in the market. But in general, there should be a consistent good return on equity. If the business, the CEO, is evaluated on return on equity is a good means of saying to the CEO you're doing a good job, or maybe you're not doing a good job. Whenever you're running a business and there is equity, it's using the money that is in the business, so again, would it be better if you use this money to have another different investment that earn more or had less risk. Profit margin, this is the net profit or net income without interest expense divided by revenue. Again, this is not cash flow, I'm not talking about cash flow, because part of your profit margin is depreciation or may be amortization, those are not cash flow items. But I do want to track my profit margin to make sure that it's trending in the same direction as if my revenue is going up, I want my profit margin to go up. I may actually be able to reduce my revenue and improve my profit margin if the revenue that I'm going after has a bad gross profit. Again, I look at the industry to see who is doing what in the industry, how well other businesses are doing in my same industry. I don't want to compare my profit margin to another industry because that does not make sense. There are reasons why some industries have a better or different profit margin, so it's really best to look at the profit margin in the same industry. Small business owners sometimes do things like put their personal expenses into their business, that's such a bad idea. There are so many reasons, if you need to get credit or if you need to sell the business and you have personal expenses in there, it does not look as though you're running the business as a business should be run, not a good business practice. Do not include your personal expenses as line items in your business expense, because again there's no valid reason for it and it does not make your business profitability look good and that may hurt you in the long-run. I can't stress the importance of the current ratio enough, my current assets my current liabilities. Because of the fact that it reflects liability and because of the fact that it's used frequently by banks as a requirement in the covenants and something that if you don't manage this could end up having your bank be called, which is painful for a business owner. Because trying to get a loan or line of credit with moment's notice, you're going to end up possibly paying a bigger interest rate or you're going to need to maybe borrow from friends and family. You need to watch the current ratio, current assets over current liabilities, and keep it over 1, just keep it over 1. That means you've got the cash or the assets to cover your current liabilities, and that's what you want. You want to make sure that you have enough cash, accounts receivable, inventory, and short-term investments to cover your accounts payable or current liabilities. The quick ratio is a better indicator of liquidity because it cuts out inventory, cash, short term securities, and accounts receivable over current liabilities. It's even better to identify liquidity because if inventory is in here which is part of the current ratio, I don't know when I'm going to sell my inventory, I may never sell it. I may have bought a whole bunch of cricket widgets and never be able to sell them. If I'm using a quick ratio, this is a really valid indicator of liquidity. Can I pay my current liabilities? If cash is tight, I want to watch this closely. If cash is tight, which happens in many small businesses as you're growing, I want to watch this ratio closely, because this tells me when I'll be able to pay my creditors or when I may be having some challenges in paying creditors. I do encourage you to have good relationships with your vendors because your vendors can help you in running your business, give you information about what's going on in the industry, even tell you a little something about your creditors. You want to take care of your vendors, that means you want to pay them in 30 days or 45 days. If you're not watching your cash, you're not able to do this and this will put you in a bad rapport with your vendors, you want to stay in partnership with your vendors so that they can help you as you run the business. Everything we've talked about in the fundamentals of finance are just good business practices, may involve reviewing your financial statements on a regular basis and making sure you know your numbers. Either by reviewing your financials or understanding your financials through ratios, just develop good sound business practices, and discipline is really a key to running a business the right way. I've always considered the business owners or the entrepreneurs that lack discipline are the ones that are going to struggle. The things that we've talked about are good business practices. I hope you find a way to implement them and enjoy putting in place some of the things that we talked about in this module, in this course. Because all of these things are just good basic components to running a business.