The Finance Fundamentals Every Business Owner Needs to Know

What does your business have in common with that of an online yoga teacher, a mechanic, or a dog groomer? More than you might think!

While every industry has unique aspects, the success – or failure – of each business boils down to finances.

Regardless of whether numbers are your cup of tea or not, you are going to need to wrap your head around some of the finance fundamentals if you want your business to succeed.

Not sure where to start? Here are some of the essential accounting aspects you should be aware of.

 

Budget Is Everything!

A budget is crucial to running a business, regardless of how big or small your operation may be. Budgets allow you to plan and forecast, stay on top of your finances, and measure your success.

Without one, your business is flying blind when it comes to incomings and outcomings.

To help you understand your budget and the path of money through your business, you will need to master the concepts of profit and cashflow. Plus, you will want to familiarise yourself with the three statements listed below.

Even if you have an expert bookkeeper looking after your finances, you still want to have a basic understanding of these finance fundamentals and their corresponding reports. That way, you can assess the financial health of your business.

 

The Difference Between Profit And Cashflow

Profit is not the same as cash flow, but both are vital in keeping your business operational.

A business can be profitable and still have negative cash flow, or have good cashflow and fail to make a profit.

Cash flow refers to the money coming into and going out of your business throughout a specific period, and how much you have available at any given time. Timing is an essential aspect of cashflow. You need to ensure you have enough money in the bank at the right time to pay your bills and suppliers.

Profit is the amount of money (net income) remaining after all your expenses are taken care of. Profit is measured over a more extended period. It’s a good depiction of the overall financial health of your business.

Cashflow keeps things going on a day to day basis. Therefore, it should be your primary focus when reviewing your accounts.

 

The Profit And Loss Statement

Also known as the income statement, this document reflects the revenue and expenses of a given period. It shows how much money is coming into your business, and how much is going out – basically, your profitability.

Looking at this statement regularly allows you to see if you are spending more than you are making, or the other way around. Comparing statements from month to month shows you the bigger picture of how the growth of your business is tracking and helps you plan for the future.

 

The Cashflow Statement

As we mentioned earlier, cash flow is the oxygen for your business. Monitoring it closely will help you to understand what your money is doing and if it is flowing at the right times of the month.

The Cashflow Statement is another essential document that you should get used to reviewing. It shows the flow of money into and out of your business. It helps you figure out if you can cover regular expenses like payroll and bills.

 

The Balance Sheet

Known as a snapshot of your business’ financial position at a single point in time, your balance sheet can tell you a lot about the health of your business. If you need to take a quick glance at where everything stands right now, the balance sheet is your go-to. This document shows exactly what your business owns and what it owes at any given moment.

 

Understanding The Finance Fundamentals

Utilising these essential statements and ensuring your records are accurate and up to date is the foundation of successful financial management.

Remember, you don’t have to be a financial wizard to succeed; there are plenty of experienced people out there to help you track and manage your business’s accounts.

The team here at Mankelow Accounts are those financial experts you have been looking for. We offer expert bookkeeping services to a range of businesses. So, if you want to ensure your financials are accurate and up to date, get in touch with us today.

2020-10-06T12:37:32+12:00Blog|