Wednesday, May 25, 2005

Looking forward with The Financial Fence®

I woke up this morning wondering why it is that people don't want to know about their personal finances, particularly when they are not going as well as they would like. Getting people excited about using The Financial Fence® has been a struggle except when it comes to looking forward. Finding out what things are going to look like in a few months or years from now. This is what gets people excited. We all like to think about things being better in the future. Its just that sometimes we don't know how to build a decent picture of that. We don't know how to get a forward picture of our financial future. If we could get it easily then we would want it more than anything else because it would give us the confidence to plan and have peace of mind.

Tuesday, May 24, 2005

Why can’t I understand the financial numbers?

Money and finance topics have often been presented in a boring and uninteresting way yet they affect almost every one in society. So if this topic is so important why have more people not found the answer to understanding how it all works? One of the major reasons is that money and the stewardship of finance has been the domain of a profession which has a way of looking at things which is not easily understood and those who work in it have had no compelling incentive to communicate with those outside it. Most people don’t go to an accountant because they want to. They go because they HAVE TOO! When it comes to choosing members for a management team most managers choose to have an accountant because they want someone to ‘look after the finances’ and the accountant is often more focused on making sure things are controlled rather than communicating with the rest of management how the numbers work with the strategic running of the business. In the business community financial communication is often not clearly understood outside the finance function and I have found that there is a high level of frustration in understanding financial statements by non accounting executives. Financial numbers are often learned ‘by rote’ rather than having a feeling of how they ‘go together.’ The effect of this is that people can answer questions from their superiors but have very little ability to make use of the answers in the daily hustle and bustle of their working life. Many executives have knowledge of the profit and loss account; fewer have knowledge of the cash flow statement and balance sheet. But how do they all work together? When I ask people this question I have on occasions been met with the question; Do they?? The prime reason for this is that in traditional reporting the statements are shown separately and no one has shown people how they work together. To make sense of the financial statements it is important to understand how they work with one another and therefore it is easiest to view them all together on one page. This is why I invented The Financial Fence® as a way for people to see visually how simple it is to view everything in the right context. So why use a fence?? People see fences every day and I felt that people needed an analogy which they would see around them on a daily basis. Combined with this a fence can also show a picture of all the financial statements working together because:-

1. Fences are made of two parts:
A. Posts that anchor the fence into the ground at a point AND
B. Rails that carry the fence over a distance.

2. Fences incorporate Milestones (Posts) and Activity (Rails) in the same analogy.

3. Financial statements also have these two parts :
A. “Milestones” - Balance Sheet.
B. “Activity” – Profit & Loss Account & Cash Flow Statement.

So by using this simple analogy people can see the BIG picture of a business which is often lost in the accounting detail. Understanding the BIG picture helps executives keep the right perspective in reviewing the numbers of an organisation which means they can make better faster decisions.

Monday, May 23, 2005

Using The Financial Fence® for Strategy

Strategy – Easy to prepare…Hard to implement I have often wondered why it is that many strategic documents sound really great and can be well founded yet in the end are never implemented quite in the way that was first envisaged. So why is this? Have you heard of the term expedient? Any one who has been involved in corporate life or in business life generally will know that there are times either in a month or at a particular time of year when certain things just have to be done. A good example of this would be getting the budget profit for a month OR making sure that you did not exceed the bank overdraft limit. During these times the last thing on your mind is implementing the strategy of the company. It’s simply to get a particular thing done irrespective of what the future holds. This is what I would call expedient behaviour. It’s behaviour which is for the here and now! Must do behaviour. So why is it that expedient behaviour ever happens in the first place? Surely if strategic plans were implemented in the way they were supposed to, there would not be the need for any expedient behaviour. However I’m sure you are aware that forecasting and budgeting is never a perfect science and that there are circumstances that are outside a person’s control. No one can predict the future with absolute certainty which is why it can be quite difficult to manage and run a company. Although I am aware of this, I think it is often a ‘cop out’ for a lack of understanding the financial implications of the strategic plan. How many numbers were there on the last strategic plan that you saw. I have seen some without any numbers at all which is absurd but many strategic plans have only the very high level numbers on them which have not always been rigorously checked in detail and integrated into a sound financial plan. Sometimes it can be as blatant as this: Get the accountant to work on some numbers which kind of support where you believe where you want to go and it will be OK. Unfortunately it is generally NOT OK. Think about this for a minute. Who on the management team of a company understands how ALL the numbers work? In my experience many management teams full understand the profit and Loss Account because often their performance bonuses are determined on the profit performance. Sometimes they also have a few working capital targets to achieve but very rarely does the entire team actually understand how the numbers work. They leave that up to the ‘numbers person’ on the management team. However, the so called ‘numbers person’ is often closeted in the numbers and does not fully appreciate the intricacies of the strategy and therefore is unable to always connect the numbers to the strategy. So what happens when things change? The numbers will always demand to be attended to. That’s the very reason why expedient behaviour exists! If at the very beginning most of the management team does not clearly understand how ALL the numbers work then when things change, as they inevitably do, people will take actions which may or may not support the strategy. In the end, if there is a major disconnect, the numbers and the strategy become entirely disconnected and the management team become entirely expedient and never implement their strategy. The best way around this is to use a tool that integrates both the strategy and the numbers. Also it must be understood by all the members of the management team. Without a doubt this tool is the Financial Fence®. It is a strategic BIG picture view of the financials of the whole company and is able to be understood by all.

Sunday, May 22, 2005

Is it more important to earn more income or have less expense?

"Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give." - William A. Ward Ever used the words ‘I can’t afford it’? This means that you are coming from a paradigm of having limited income and therefore not enough to go around. Why not use the words ‘How can I afford it’? This puts your focus on producing income rather than controlling expenses. At the end of the day releasing more income into the equation gives far more opportunities and I have found it is more enjoyable. So in my opinion the light blue squares on the top financial rail should receive more focus than the orange ones! "Don't be afraid your life will end; be afraid that it will never begin." - Grace Hansen

Saturday, May 21, 2005


The Financial Fence® is a simple elegant way of visually setting financial goals and allowing you to understand what to do to achieve them. Imagine being able to confidently put in place the building blocks required to achieve financial wealth and prosperity before you went to a financial planner. If that makes you feel good imagine the added bonus of being able to monitor your progress along the way to financial success using exactly the same tool. Yes that’s right! The Financial Fence® is not only a brilliant planning tool; it is also a simple monitoring tool as well. You can plan and monitor which means you can confidently move towards financial success with guaranteed peace of mind. You will know exactly where you are on your financial journey. As situations change, you can upgrade your goals accordingly and then monitor your progress without having to refer to expensive professional advice. We all need professional advice along the way so when you do require the services of financial advisor, you will be in the driving seat with the ability to ask the questions rather than always being on the back foot and bamboozled by numbers and language you find difficult to grasp and fully understand. You will feel financially empowered and be able to speak to your friends and family and surprise them with your knowledge and confidence in dealing with both your family and business finances.

Friday, May 20, 2005

Banks in $9bn card fee bonanza -

By Matt Wade and Duncan Hughes
May 20, 2005

The hidden cost of credit to ordinary customers has more than doubled.
The nation's banks last year earned more from credit cards than from housing loans, amassing a record $9 billion in fees from ordinary customers and businesses, a Reserve Bank report says.
The banks' fee income grew 4 per cent in 2004, or $327 million, underpinned by a 30 per cent surge in credit card fees, the bank revealed yesterday.
This growth was due entirely to fees that non-business customers paid - these fees rose 12 per cent to $3.44 billion.
Changes in the hidden interchange fees that banks and card companies charged on credit card transactions crimped fees collected from businesses by about $500 million a year.
These changes, which the Reserve Bank imposed late in 2003, reduced overall bank fees charged to businesses by 1 per cent to $5.56 billion.
But banks recouped some of this loss by lifting fees on credit cards, which jumped $180 million to $800 million.
AdvertisementFees from the big banks' credit cards have more than doubled since 2001 and have been growing at an average 29 per cent a year since 1998.
The average annual fee on a standard credit card was $38 in 2000. Last year it was $85, the report said.
Separate figures released yesterday showed overall credit card debt reached a record $30.27 billion in March, with the number of cards increasing to almost 12 million.
The average outstanding card debt was $2565.

The elements of The Financial Fence® - Part 3

In the last two days we have covered the first two elements of The Financial Fence® which were the financial posts and the top rail of the fence called the consumption rail. Today we're going to cover the bottom rail which for many people is the key to finding there way to financial freedom. It is called the ACCUMULATION rail. The reason why this rail is so important is that to be financially free you need to be in a position where money is working for you rather than you working for money. This is achieved by accumulating the right sort of capital. This is capital which can produce income. Basically there are two types of capital that we can accumulate in our lives. Personal Capital which some people call lifestyle capital. This generally produces more expenses for people. Then there is Investment Capital which generally produces income for people. So on the bottom rail of The Financial Fence® we start with any net income left over from the consumption rail ad deduct from that the cost of any capital that has been accumulated for the period. Think about it for a minute. Could the amount you have left over each week or month add up to buying a property for cash? Likely not and therefore to accumulate capital more quickly you can utilise the leverage capacity of debt. This is why at the end of the accumulation rail we add the activity up and this will show the increase or decrease in a person's debt. Remember, if you do not accumulate Investment Capital, you will never be able to produce investment income. If you don't produce investment income you will need to continue to sell your time for money to produce personal income. While you may require the use of debt to accumulate more investment capital, provided it is giving you a better rate of return than the cost of the debt, you will in time be working toward your financial freedom. Getting a bigger propoertion of your income as investment income rather than personal income is another measure of how far you are along the journey.

Thursday, May 19, 2005

The elements of The Financial Fence® - Part 2

Yesterday we were talking about the financial post and that sometimes we can be fooled into thinking that what we see with our eyes is a good indication of what someone's wealth is all about. Remember people can be like a duck - Cool calm and collected on the surface and pedalling like hell underneath to keep up. If you get too much debt and not enough equity, then no matter how much capital you accumulate , life is going to be a struggle keeping up with the debt repayments. best to sell some of your capital and get back to a sensible ratio. Today I want to talk about the top rail of The Financial Fence® Just like a standard fence, The Financial Fence® has two rails. The rails of the fence represent the activity in a business and the posts represent the milestones or achievement points. The top rail we call the CONSUMPTION rail and there are a few reasons for this. It contains a person's income and expenses. It represents the reources that you have received and expended for a period. Another way of saying this is ; it shows you what you've got left after your activity and in this world of instant gratification, the challenge is to have something left at the end of your consumption rail. Think about it though; If you have nothing left at the end of your consumption rail, how will you ever begin to accumulate the capital that you require to become financially free. How will you ever get off the treadmill of working hard all the time and never having enough. Make a decision today that you will make sure you have something left at the end of your conumption rail so that you can begin the journey to financial freedom.