PERSONAL FINANCE 11: THE WORKINGS & USES OF A PERSONAL CASH FLOW STATEMENT WITH NO EARNING ASSETS 2
Considering the case of an individual or household with no financial or physical Earning Assets, whose only Earning Assets are Manhours, where the Salaries or Professional Fees have related Direct Costs which do not leave sufficient Cash to meet Expenses:
What are the possible options for solving the financial problem?
The options start with your Manhours, your only Earning Asset.
1 If you are an individual, you can increase your Manhours: either by doing paid overtime (if your job allows it) or by taking on a second job. In a household, the increase in Manhours can be from another member of the household taking on a job (e.g., the wife?).
2 The value of the Manhours as an Earning Asset can be increased by taking on a higher paying job.
3 If your Manhours earn a professional fee, you should evaluate your billing rate to see if it can be increased. Some lawyers or consultants, for example, include travel time in their professional billings (in cases where the place of engagement is not the office).
4 You can hire an assistant who is willing to be paid at a rate lower than your billing rate and charge the additional manhours at your regular billing rate (assuming that the engagement needs or can take in the additional manhours). In these cases, you will have increased your Direct Costs (the pay of the assistant) –but you will also have increased your Earning Asset, your Manhours.
The purpose of the cash flow statement. The cash flow statement has 2 primary purposes. One, it indicates to the investor how much cash money flowed into or out of the business over a period of time, usually a year or a 3-month quarter. Second, it reconciles the other two financial statements – income statement and balance sheet. For the income statement, it reconciles the accounting assumptions with the actual cold, hard cash the business earned. For the balance sheet, the cash flow statement shows the differences in the level of assets or liabilities from the previous reporting period.