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:

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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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