Analysis of Cash Flow for a Small Business

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 secretarial 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?

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