Financial Fundamentals - What Every Small Business Owner Should Know!

Business owners rarely go into business to deal with the financial aspects of running a business. It's easy to understand why! You are passionate about the products or services you provide and want to focus your time there. The financial aspect usually falls to the bottom of the "desired responsibilities" list. It is critical to the long-term success of your business that you understand some of the Financial Fundamentals of being a business owner though. You don't have to be an accountant or financial analyst, but it is important that you have some key skills in your business toolkit to measure the financial aspects of your business. It's okay to outsource this activity so that someone else can do the work you don't like to do, but make sure you understand the output of the financial information. You'll need it to help you make informed decisions about your business. Remember! Accounting is not just about taxes. There's so much more to know about the numbers, so you'll know how your business is doing from the management perspective.

There are a variety of key aspects of your financial picture that you need to be aware of and they can be outlined based upon the three critical financial statements: Profit/Loss, Cash Flow, and Balance Sheet.

I meet with entrepreneurs every day that are unsure of their profitability. They "think" they are making money because they have money in their checking account. This is NOT how you should be running your business. Having money in your checking account doesn't mean you are profitable. It could mean you haven't paid all the bills so you have a little cash. Cash and profit are two different concepts. If you aren't profitable, you won't have longevity in your business.

So what is the difference between profit and cash? Profits are determined through an equation of Revenues ? Cost of Goods Sold = Gross Profit ? Overhead Expenses = Net Profit. This equation is the makeup of your Profit/Loss Statement. Revenues are dollars from generating sales within your business. Cost of Goods Sold reflects the direct costs for labor and materials incurred in your business. Overhead Expenses are all those other costs that you incur so that your business can function (i.e. Rent, Taxes, Insurance, Marketing, Accounting, etc.)

You can have activities that affect cash but are not considered revenues or expenses. For example, when you borrow money from a lender, it is not considered income. It is classified as an increase in your liabilities (i.e. debt). When you repay that loan, it will not be considered an expense. It is a reduction in your liability. Any interest you might incur on that loan would be classified as interest expense, but the principal portion is not. Similar concept applies for owner investments and withdrawals.

Often times the two concepts of cash and profit are not clearly defined for small business owners; therefore, you don't have a good handle on your finances and how to interpret any outcomes from financial reporting. You can show a profit and have a negative cash flow if your loan payments, owner withdrawals, and other non-expense activities are taking more cash out of your business than you have profit. Same goes for the opposite flow, you can have a lot of cash coming into the business through an increase in personal or lender-financed activities vs. revenues. The most basic of cash flow statement information can be outlined as Beginning Cash Balance + Cash Inflows ? Cash Outflows = Ending Cash Balance. It's important for you to understand the concept of your Profit/Loss Statement and your Cash Flow Statement. They provide two different views of our business.

The third financial statement you should be preparing monthly is the Balance Sheet. The Balance Sheet provides information on your Assets, Liabilities and Equity. Assets are what you own that is of value. Examples include Bank Accounts, Accounts Receivable, Inventory, Property, Plant, and Equipment. Liabilities represent your obligations to others. Examples of liabilities include Accounts Payable, Notes Payable to Lenders, Loans from Shareholders, etc. The Equity balance reflects the value of your ownership in our business. When you take the value of the assets less the value of your liabilities, the remainder is your equity.

It doesn't matter the size of your business, profitability and ongoing financial stability is something you should be monitoring on a regular monthly basis. Some will say that they are too small for creating financial statements. That is your way of not holding yourself accountable to managing your business wisely. It'll always be someone else's fault when your business fails?or at least that is what you'll say. Though it won't be the truth, it'll be your fault for not managing your business wisely. You can choose to succeed, or to choose to fail. It is always a choice, not a default. So make the choice to be a financially informed business owner. Your business will thank you through increased profitability and longevity!

Contact: Pam is the author of Out of the Red, a book that covers various important aspects of management accounting for small business owners. Topics include Break-Even Point, Cash vs. Profit, Budgeting, and more. To order your copy, call 816.304.4398.

For more information, you can visit the website at http://www.rppc.net

Pam Newman is a Certified Management Accountant, Author, and Certified QuickBooks? ProAdvisor for Financial and Point-of-Sale software.

Wood Dale Chicago prom limo .. Lockport Chicago limo O’Hare
In The News:

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents
Internet browsers are useful, but they can be dangerous. Clicking on malicious links can direct you to dangerous websites that steal information or infect your device.
Apple's latest iOS update introduces advanced artificial intelligence capabilities, which may be capturing and analyzing sensitive information.
Breach site confirmed 56,904,909 Hot Topic users' data leaked online. Tech expert Kurt “CyberGuy" Knutsson says the company's silence makes matters even worse.
Tech expert Kurt “CyberGuy" Knutsson discusses how an innovative Easy-Way kit turns standard strollers electric, simplifying navigation for parents.
Tech expert Kurt “CyberGuy" Knutsson talks about T-Mobile being hacked in broad cyberattack on global phone and internet companies.
Tech expert Kurt “CyberGuy" Knutsson shows you how to add, customize and manage widgets for quick access to apps and info from your iPhone home screen.
Wrong Google searches can not only compromise your device and personal data. They can also bring law enforcement to your doorstep. Hackers are targeting Google searches.
China's Shanghai Kepler Robotics has developed a new humanoid robot that can carry up to 35 pounds per hand for commercial applications across various industries
Checking your hearing has gotten easier with the new hearing test feature in AirPods Pro 2. You can take reliable hearing tests using your iPhone or iPad.
Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.
Kurt "CyberGuy" Knutsson explains how a VPN — virtual private network — works and how running it can slow down the operation of your device.
The WalkON Suit F1, an exoskeleton developed to help people with disabilities, can actually walk over to a person in a wheelchair, solving a major problem.
ClickFix, a new scam targeting computer users, is on the rise in the U.S. The scam prompts its targets to click on a link to fix a problem.
Skydweller is the world's largest unmanned solar-powered aircraft that can stay airborne for weeks, and even months, without refueling.
The U.S. government said it is investigating after People's Republic of China hackers targeted commercial telecommunications service providers in the U.S.
Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.
Scammers are using increasingly sophisticated ways to lure unsuspecting victims, and some are impersonating an email help desk or support team.
You can unsend or edit your iMessages with the latest iOS updates. Kurt the CyberGuy explains how you can save yourself some potential embarrassment.
Kurt “CyberGuy" Knutsson says there’s been a rise in cybercriminal services using hacked police and government emails to send subpoenas and data requests to U.S. companies.
Kurt “CyberGuy" Knutsson discusses how Axiom Space and luxury designer Prada are collaborating on NASA's Artemis III spacesuit design.
Voice assistants may cause confusion across devices. Tech expert Kurt “CyberGuy" Knutsson offers some solutions to fix it.
Shameless scammers trick veterans into giving personal info or cash. Tech expert Kurt “CyberGuy" Knutsson explores five common scams.
Tech expert Kurt “CyberGuy" Knutsson helps you honor our heroes with these powerful podcasts, audiobooks and documentaries this Veterans Day.

What are the COSTS Associated with joining Leads Groups?

When it comes to cost, how much can you afford... Read More

Do You Really Need a Toll-Free Number for Your Business?

Do You Really Need a Toll-Free Number for Your Business?... Read More

Pressure Washing Companies; Pricing Dock and Deck Cleaning

If you own a Pressure Washing Company and wish to... Read More

How To Make Sure Your Customers Still Trust Your Small Business

The stock market is still on a wild roller coaster... Read More

Franchise Sales and Use of Online Franchise Directories

Franchising Directory Sites-Paid Advertising, Lead Generation for FranchisingFranchising Directory Sites... Read More

20 Great Ways to Market Your Business Locally

Whether your target audience is in your neighborhood or across... Read More

Small Business Health Check-Up

If your home business is not performing the way you... Read More

Image is Everything - Secrets to Cleaning Car Fleets

A recent survey indicated that clean Taxi Cabs Fleets have... Read More

The Types of Skip Trace Accounts

First, we need to define the different kinds of skip... Read More

Small Business Survival Tips

No matter what kind of small business you have, you... Read More

Dig Deep for Small Business Ideas Before You Start the Wrong Business

If you're serious about wanting to start a business, the... Read More

7 Essentinal Resources for Small Business

So you want to start a business but you don't... Read More

Small Business Marketing: Specialize or Generalize?

There have been many great points raised on both sides... Read More

Virtual Assistant ? Questions Answered

What is a Virtual Assistant?A Virtual Assistant is a person... Read More

Money Series 1: Who Takes Your Money

Your business is making profits, but where is the cash?... Read More

Leverage The Power of Publicity For Your Small Business

Your business is only as good as the number of... Read More

Small Business Owners - Form a Relationship with Your Bank Manager

It's just like a marriageTo expect a bank manager or... Read More

Share Ad Expenses to Boost Profits

The challenges of the small business owner are well documented.... Read More

How To Plant Seeds of Success With Small Business Ideas

Think of all of your business ideas as tiny seeds... Read More

Creating Lists to Learn About Yourself, Your Business and Your Customers

I love lists. I make them for everything. And I'm... Read More

How Small Business And Nonprofits Can Afford Multimedia For The Web

Multimedia is everywhere on the Internet, whether in the form... Read More

Incorporating a Small Business: S corporations versus C corporations

If you've been considering incorporating your small business, you've probably... Read More

Have You Thanked Your Competitors Today?

Competition in the business world is often viewed as a... Read More

How To Create A Business Note That Is More Attractive To A Note Investor

You are selling your small business (business value under $1... Read More

Perfecting Your Pitch

Why should you describe your business to others in 5... Read More

Antigo wedding limo ..