Analysis of Cash Flow for a Small Business
Charles, a financial consultant, has been self-employed for two years. His list of clients has grown, and he is earning a reputation as a shrewd investor. Charles rents a small office, uses the pool sec- retarial services, and has purchased a car that he is depreciating over three years. The following income statements cover Charles's first two years of business:
Year 1 Year 2
|
Commissions revenue
|
$ 25,000
|
|
$65,000
|
|
|
Rent
|
$ 12,000
|
|
$12,000
|
|
|
Secretarial services
|
3,000
|
|
9,000
|
|
|
Car expenses, gas, insurance
|
6,000
|
|
6,500
|
|
|
Depreciation
|
15,000
|
|
15,000
|
|
|
Net income
|
$(11,000)
|
|
$22,500
|
|
Charles believes that he should earn more than $11,500 for working very hard for two years. He is thinking about going to work for an investment firm where he can earn $40,000 per year. What would you advise Charles to do?