Whoever Made This Meme About Coffee Shops May Have Never Seen (or PURPOSELY IGNORNING) Income Statements and Financial Statements

The Facebook group "Stop Blaming Capitalism for Socialism's Failures" is now plagued with Anonymous Participant posts. It's probably because they could no longer defend themselves. Anyway, let's think of the fallacy of this thinking. I'd like to point out that people get rich from the net profit--not from the sales. People should stop confusing sales for profits!

Business & Plans

If we look at that sample income statement, we look at how the coffee shop operates. Let's use the USD currency over the PHP, even if I'm a Filipino. The reason is that the sample income statement is from an American website. If we look at the income statement--we have sales deducted from the Cost of Goods Sold (COGS), and every other expenses. SG&A means selling, general, and administrative expenses--which involves paying the coffee growers, the coffee refiners, the coffee packers, and the coffee brewers. The person who runs the coffee shop is involved in the chain. The supplier of the coffee must also pay the coffee growers and coffee refiners. In short, we've got a supply chain going on.

If we look at the Earnings Before Interest and Taxes (EBIT)-- we also look at the interest expense. People borrow huge amounts of money, therefore, they need to pay interest rates. If a company had a financial bond from the money market--interest rates have to paid every quarter. After all, the person had to part away with that money and paying interest is necessary. The full amount must be returned within the specified period. If I invested in a bond for SM or Aboitiz--the respective company must pay me interest as agreed.

Now, we move to the sample financial statement of the same sample coffee shop:

Business & Plans

If one's confused about the difference between accounting and finance, I often get lost too, even after getting an MBA. Here's an explanation from the website where I got the charts:

First, let us explain the difference between cash and income as many people tend to confound both. The main difference between a cash-flow and an income is timing. To understand the nuance, let’s take a general example from the consulting industry: Suppose you sent an invoice of 1,000 USD, dated March 15th, to your client after completing a consulting project. Your client receives the invoice and then calls you to confirm he will pay his dues during the first week of April. Comes April, you check your bank account, and you notice indeed a wire transfer of 1,000 USD dated April 5th.

So, what did actually happen? Accounting wise, you should record 1,000 USD as a revenue for the month of March in your income statement, while you should record 1,000 USD as a cash inflow for the month of April in your cash flow statement. This means that cash flows do not necessarily follow the same recording date of income and payments. Income and expenses usually follow the invoice date while cash inflows and outflows follow the actual clearing or payment date.

So what is the cash flow statement comprised of?

It is simply the summary of three types of cash flow movements over a certain period of time:

The cash flows from operating activities: Here, cash inflows are money collected from customer orders and cash outflows are payments made to pay for COGS, raw materials and external suppliers.

The cash flows from investing activities: Here, cash inflows are money collected from the sale of a certain asset or capex item (such as an old espresso machine) and cash outflows are money paid to acquire new assets (such as a new espresso machine).

The cash flows from financing activities: Here, cash inflows are new funding received from business loans or equity investors and cash outflows are payments made to partners in the form of dividends for example.

Investors focus a lot on the ability of a business to generate solid and tangible cash flows which means that it is not enough to have a profitable coffee shop, what’s even more important is to grow an F&B venture that generates consistent and significant cash flows.

If you use our Coffee Shop Financial plan in Excel included in our premium Coffee Shop Business Plan package, you will be able to automatically generate a detailed cashflow statement after updating your cost and revenue assumptions.

If we think about it, the higher-ups or the owner of the coffee shop is burdened with taking care of the money. The three areas of operations, investments, and financing activities. It's because businesses will need to manage their revenues. Revenues will be used to pay for stuff like the COGS, raw materials, and suppliers--which includes the workers' salaries. The investing activities may go from a garage sale or investing some money not needed for the moment. FInancing activities would also involve getting loans and for some, paying dividends to every stockholder. Employees who have the stockholder option should also be paid dividends.

If there are no solid and tangle cash flows--what will be used to pay the employee? If the employees aren't well-paid and well-maintained--how can the operations go on? The working class is an important component. However, they also need someone to guide them properly. Employees who are given proper treatment, will in turn, make the company profitable and sustainable. Employees who are ill-treated may make the company profitable but not sustainable. What's profitable today may no longer be profitable tomorrow. However, sustainability results in long-term profitability. It's like it can be profitable to invest in cryptocurrency in the short run but not in the long run. It's more profitable to invest in stocks and bonds as a long-term investment--even if there may be short-term losses.

Get Stuck with EDSA, End Up Like Nokia

Yes, we should never forget what history teaches us. A classmate of mine, back in high school, wrote a simple and blunt essay called "History: A Teacher". I doubt he still has a soft copy, given it was already more than 20 years ago. I'd like to quote Duterte critic Andrew James Masigan wrote this in Philippine Star --something that should remain relevant: I would never undervalue the 1987 Constitution. It dismantled the legal framework of a repressive regime and established the democratic institutions we enjoy today. For this, I am grateful. The 1987 Constitution was crafted with the best of intentions. It sought to put the Filipino first in all aspects of governance and to level the playing field amongst sectors and peoples. But it is far from perfect. It failed to consider the importance of foreign capital and technologies and the stiff competition we would have to face to obtain them. In short, its economic provisions were short-sighted . So despite the Constitut...

#SahodItaasPresyoIbaba Economics' Bad Accounting

I would like to apologize in advance to my readers. The picture I'm presenting is in Tagalog, and not all my readers speak Tagalog. I would translate the picture's text into English for convenience. It says: "Ano ang bumubuo sa mga presyo?" means "What comprises the price?" "Gastos ng materyales" means materials expense "Gastos sa kasangkapan" means depreciation expense ""Gaston sa pasahod" means salary expense "Kapitalista" means capitalist Renta is well, rent "Kayang pababain ang presyo" means "Prices can be lowered". It says that capitalists (industrialists, landlords, bankers) and elitist governments are part in the gross profit. Get rid of excise taxes (either permanently or temporarily) for the prices of goods and services. In the times of crisis, in the burden of sacrifices, we need to be watchful for capacity. Whatever savings for times of difficulty by the workers and countrymen, the...

Past Chinese School Education in the Philippines was Based on "Sǐ Jì Yìng Bèi"

Chinoys of my age (and older) may remember these textbooks. I called them as the "symbol of trauma". It was memorizing something without understanding it . One would just memorize (without understanding it) because it was typical. Not being able to memorize what was assigned? Get a bad grade? One can expect physical punishment like hitting the hand with a ruler or chili in the mouth. Chinese language teachers are stereotypically strict . The language textbooks (above) are what were used during the 1990s to the early 2000s. As I wrote it, the Sinjiang textbooks aren't effective in teaching Mandarin , in a world where Mandarin has over a billion speakers! There's a Chinese proverb that says, "死記硬背 sǐ jì yìng bèi" or "Memorize to the point of death". That's exactly what those textbooks are. Memorize to the point of death! Okay, it may sound exaggerated. However, that's how Chinese language teachers in the Philippines were made to teach the ...

Migrante International's Really Bad Economic Literacy

March 17 (which is tomorrow) seems to be an unofficial holiday for some people, right? I'm sickened that the late Flor Contemplacion has been treated like she's some national heroine (and thankfully, tomorrow isn't a holiday) even after Singapore had proven her guilt. A movie was made by Joel Lamangan called The Flor Contemplacion Story . The call for Migrante (Migrant) International has been to remember Flor even after several years. What's not too surprising was to learn that Flor's sons were all arrested for drug-related charges. Even her eldest son died while in prison. You have Migrante International wanting to end the labor export policy. However, a post by Migrante really shows how this group fails basic economics. I will not post the whole press statement but one part that made my eyes roll. >> Further opening the country’s economy to foreign ownership and control will worsen the exploitation of our people and the environment without creating a susta...

"Filipino First Policy" Has NO PLACE in the Rising Asian 21st Century

I guess nobody saw the Asian 21st Century coming, right? China was once a poor nation but look at it now. Vietnam was once a poor nation but look at it now. Singapore was once a poor nation but look at it now. The late great Lee Kuan Yew wrote his book From Third World to First . I'm afraid some people have been using it to go against the presidency of Ferdinand R. Marcos Jr. while ignoring what else Lee Kuan Yew had to say. Lee Kuan Yew described the Filipino press to be rambunctious on pages 304-305 which I agree. I'm afraid that the Filipino press may have had a hand in getting rid of any economic or political reforms that could help the Philippines. Yet, one policy has been holding back the Philippines for decades and yes, it's the Filipino First Policy . Reviewing the Filipino First Policy and why it has no place in the rising Asian 21st century I remembered how the values education subject taught Carlos P. Garcia's stupid Filipino First Policy as a Filipino value...

Remembering the Late Jesse Robredo's Quote on Systems That Force People to be Good

It's been some time since Jesse M. Robredo died too soon. Hopefully, his wife Atty. Maria Leonor Gerona-Robredo is true to her word, in her willingness to amend the 1987 Constitution of the Philippines, for the sake of foreign investments. It's a shame I never wrote about the late great man. The CoRRECT Movement on Facebook gave this important note on Robredo's life. Robredo said, "It's not enough for an official to be good. There has to be a system that forces them to be good." Whether or not Robredo was for charter change or a few constitutional amendments, I can't tell. For some racists, let me remind them that Robredo's real surname is Lim and his paternal grandfather is the late Lim Pay Co. In terms of Robredo's credentials (and I tend to sometimes brag about the credentials of those I quote), here's what the City Government of Naga website says: He is an Edward Mason Fellow and a graduate of Masters in Public Administration at the John...

Filipino First Education Created the Fixed Mindset Over Growth Mindset Mentality

Tomorrow is Bonifacio Day. It's effortless to say that Filipino First Policy works. I wouldn't be surprised if Andres Bonifacio gets used as a poster boy. However, Bonifacio worked for British and German investors . I'd like to talk about how decades of Filipino First Policy compromised our education system. Some idiot on Facebook said which I'll paraphrase to avoid getting personal. The idiot said, "If you let foreigners invest here, can Filipinos afford it?" The same idiot also scorns the law of supply and demand (read my post discussing why that's plain silly here ). People who believe in #SahodItaasPresyoIbaba must first prove it works by opening such stores nationwide, to show that the Philippines doesn't need FDI to succeed (read here ). Of course, I can expect them to say "It's the government's responsibility to raise salaries without raising the prices of goods." That's just plain bad accounting and finance too! Andrew Ja...

Refuse to Do Business with a Person Who Looks Down on Menial Work

If there's any reason why some people are angry with the rich--it's because of rich people who look down on the poor. Some people are born rich without knowing the struggles of the one who originally acquired the wealth. Some rich parents make the fatal mistake of making their children feel entitled. Meanwhile, some rich parents make their children do the right thing by not waiting until things get too far. Some rich parents end up making their children attend middle-class schools, do summer jobs, work as employees in their own businesses, and teach them the value of wealth, especially by narrating the struggles before they got wealthy. In looking for a business partner, I feel it's very important to look at the attitude of these people. How do they treat people who do menial work? I could imagine looking forward to a business contract. However, it turns out that the potential business partner is a spoiled brat . Maybe, it's already a red alarm if I'm invited to an ...

Dayang Daya: The Case of Five-Six Lending Services Roaming to Collect Christmas/New Year Debts by January

I remember during the late 1990s when the song "Dayang Dayang" (Princess of the First Degree) was played on the radio. The origins are often debated whether or not it was from Muslim Mindanao or from the other neighboring countries. The Philippines has had settlers also from Malaysia and Indonesia. A parody cover by the late Yoyoy Villame was called Dayang Daya or Cheating Cheating. It was probably making fun of the Indian five-six lending business. Indians tend to be called Bombay because of the location known as Mumbai. I even made the mistake of referring to Indians as "Bombays" more than once. The song "Dayang Daya" does talk about the five-six lending services. It does target a lot of gullible people. I even became nearly distrustful of Indians in college for quite some time. I wrote how a Merry Christmas may lead to an Unhappy New Year due to debt burden (read here ). I tend to say to myself, "Somebody hasn't paid their debt!" every ti...

Will Opening the Philippines to 100% FDI Lead to Foreign Monopoly?

Monopoly - Hasbro I was looking at the CoRRECT Movement Moderated Public Forum on Facebook. I found more illogical arguments by a certain troll in the forum named Juan Dalisay Jr.--the writer of the Superphysics One website. However, this isn't the first argument I ran into as I've seen arguments from Kabataan Partylist and the League of Filipino Students on Facebook. They have claimed that foreign direct investments (FDIs) will lead to exploitation, only they will get rich, that they will rape resources, and an even funnier claim is that they will lead to monopolies . Some people, even fools, should be allowed to defend themselves at CoRRECT Moderated Public Forum than just live in their echo chamber of Facebook pages. However, Kishore Mahbubani and the late Lee Kuan Yew had long disproven that . The testimony is in the book From Third World to First by Lee himself. Mahbubani said foreign investors create jobs, bring capital, and teach new skills. I wonder if protectionist adv...

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