Accounts Receivable Financing
You make unicycles. You've sold 800 of them to the Giraffe Watchers Club of the Serengeti. They owe you a million bucks. Unfortunately, they won't be back from safari for a month, assuming the lions don't get to them first. But you need that million bucks today, so you can build out the unicycle order for The Congressional Clown Club, otherwise known as Congress.
To get that money, you can apply for accounts receivable financing, wherein you pledge as collateral the promise of payment of that million bucks from the Giraffe Watchers Club, owed 27 days from now. You can take the money to a bank, or to what is called a factor, who will then gladly pay you something like $970,000 today in return for your million bucks I.O.U. in about a month. The factor takes on the risk of the Giraffe Watchers Club becoming lion dinner and not paying, and in return, if you do the advanced math here, that factor makes 3% interest for that one month of risk, or an annualized return of 12 x 3% = 36%. As long as those owing their bills actually pay their bills, the business of being an accounts receivable financier is enormously lucrative. You just have to stay away from the lions.
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what is an income statement I made money yeah that's an income statement and it's [Man jumping up as money rains down]
actually not all that far off from what accountants lawyers bankers and other
forms of humans who count beans call an income statement well cleverly named an
income statement is a statement of income it just states how you made your [Two guys stood at a food stall]
income your french fries smoothie stand like who would have ever thought that
would taste good sold a million units at five bucks each to give you five million
dollars in revenue last year well you had some cost that went with
those sales though you had to buy cups the french fries and other unnamed [Costs of french fries smoothie stand]
ingredients and you had to pay 2 some ones to stand there and convince people
to drink liquefied potatoes then you had to rent space for your stand and buy
insurance and advertise and that abnoxious mascot in the potato costume
you had five million in revenue and three million in expenses and this [revenue of french fries smoothie stand]
number right here that's your pre-tax or operating profit
you then take away your 30% in taxes which on two million dollars is 600
grand and blammo that 1.4 million is your net income or [net income figure for business]
after-tax profit this whole thing right here is your income statement and yeah [income statement for french fries smoothie business]
it can and does get way way more complex than this but let's start with starch
smoothies and work our way up [man at french fry stand thinking about selling sushi shakes]
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