Who benefits from this approach?

Entrepreneurs, analysts, planners, bankers, teachers and business management consultants all benefit. In fact, anyone who deals with economics in schools, universities, training centres or politics can reap the rewards. This includes business journalists, future master craftsmen and high school graduates. Some may soon enter politics or be appointed to a company's supervisory board. 

All those who believe in "standards" such as IFRS 18 are invited to reconsider their views on cash flow and income statements after reading this approach. 

Simplifying for entrepreneurs' success

1. There is a long list of authors, particularly in English and French, who offer in their basics valuable advice to entrepreneurs and people setting up a new business segment. However, many fail to establish a connection with performance characteristics, test values, key figures, limit values, company comparison and, last but not least, early warning systems.
2.There are two cornerstone: 'gross cash surplus' and 'self-financing capacity'. The latter shows the money generated independently, which is available for investment after deposits and withdrawals, and after repayments of debts. Things in between need to be clarified. Fortunately, the core business management terms are the same for micro companies as they are for large international groups.
A vast part of business management experts adhere to 'standards' like the new IFRS 18. This is astonishing, as such standards originate from accountants rather than entrepreneurs. The mindset of these both groups are by far not the same. 
3. In the digital age, no one needs the “debit and credit” scheme for double-entry bookkeeping anymore, not even for accounting theory. Many simplifications are possible. You will find much criticism in my writings in order to make business management easier to teach and apply.

Using the same terms in analysis and planning eliminates any barriers.

Time available for business management is limited. Entrepreneurs must focus on effective production methods, employee leadership, environmental respect, pest and infection control, assurances, taxes, and their sector's public image. Additionally, entrepreneurs are facing growing bureaucracy. In the future, it will probably be even less time for business management. This is why some are calling for a few but meaningful business management terms.

Advantages of clear paths

The following pages cover some basic topics from the perspective of entrepreneurs.

1. Profitability, liquidity, and stability form the core of business management. Most important: Even those, who have only a few or a short insight into economics must first know about these targets.

2. It is the analyst's job to convert the annual accounting statement into an economic one. First, they must adjust the profit and loss statement, and then the balance sheet. So, the "profit" becomes "ordinary profit". In some economic sectors they deduct wages or salaries for the family workes as to get the ordinary profit. Surely, then the ordinary profit can not be used as the base of liquidity and stability assessments. Thus, we renounce onto that way. Most important: In cases of over-indebtedness, the illogic of using "debits and credits" disappears when digital arithmetic is accepted.

3. "Cash flow for self-financing of investments (cash flow 3)" should be the preferred cash flow, supplemented using depreciation as a metric. Most importnat: The cash flow statement is not an indicator of liquidity. To avoid confusion, we should probably not speak of 'cash flow 1 to 3' but of 'cash surplus 1 to 3', because the "gross cash surplus" is the base.

4. In order to judge profitability, it is necessary to determine the remuneration of labor activities and capital. Most important: The division of profit into 'three activities' does not benefit entrepreneurs or supervisory boards.

5. As soon as possible, an entrepreneur should be informed of the costs and benefits of his branches. The author attempted to follow a second method for detecting variable and full costs that is less time-consuming. Most important: The author proposes a scheme with double cost columns for calculations of contribution margins and full costs at the same time.

6. Question on business planning: Should we compare different target developments or will we use year-after-year planning? The latter should be preferred if the company is experiencing financial difficulties. The same applies when new objectives have already been decided upon. Most important: It's helpful to choose a program in which you can switch; at least the loan lists are different.

7. If a company is experiencing significant financing difficulties, calculate its short-term liabilities for the coming year. Most important: Have a program that presents you a helpful table.

8. Digital computing replaced mental arithmetic in the 1960s. Previously, each column of numbers could only be handled using the same sign. This is why "debit and credit" was invented—nothing else! Digital counting eliminated the problem of different signs in a column of numbers. Most important: A simplified theory of double-entry bookkeeping is possible.

For more details, see the file “i Business Management - Basics, Indicators, Examples.pdf”. Please note that this file is not a complete textbook. For example, it omits financial mathematics, machinery and building cost calculations, market speculation knowledge, and price cycle information. You can download the file here. 

It is preferable to have simple definitions that entrepreneurs, supervisory board members, and politicians can keep in mind. If necessary, they may learn more exactly definitions later on.