Understanding the financials of their business is a necessary skill for any entrepreneur. Thorough knowledge of how your company’s financial performance has been in the past can help you make informed decisions about the future. Here are some important terms for you to understand and resources for you to consider.
The Balance Sheet
A balance sheet is a financial statement that reflects the financial position of a company or other entity at a particular point in time. The balance sheet should be read from the bottom line to the top line.
The assets are listed on one side, with the corresponding value on the opposite side. The liabilities are listed on one side, with their corresponding value on the opposite side. The owner’s equity is listed on one side, with its corresponding value on the opposite side. The difference between what an entity owns and what it owes represents its equity (the owner’s interest in that entity). You can get software that can guide you through the process, ensuring you don’t miss any steps.
An income statement is a financial statement that reports on a company’s revenue, expenses, and net income. It is one of the three key financial statements used for external reporting. a snapshot of how well a company is doing financially. It measures the performance of the company by looking at its revenues and expenses. You can get a rudimentary understanding of this by doing some online research or taking some classes either online or at a local trade, tech school, or community college.
Cash Flow Statement
The cash flow statement is a financial statement that provides information about the cash flow of a business. You can use this statement to understand how much money is coming into and going out of your business. The balance sheet and income statement are also important statements in assessing the financial health of your company, but they don’t provide as much detail as the cash flow statement.
The profit equation is a simple mathematical calculation that shows the net income of a company. The profit equation is calculated as the total revenue from sales minus the cost of goods sold, operating expenses, and general administrative expenses.
Many times, business owners have an excellent handle on the big picture of their company, but once they understand just how complex business financials are, they usually come to the conclusion that they need some help. This is why it is so important to get someone on your team who understands the financials and can help you understand them as well.
It is a common misconception that outsourcing payroll is expensive. It does not have to be. The cost of outsourcing can vary depending on the company you hire and the services they provide. Outsourcing means no need for you to have extensive knowledge of tax or accounting law and no need to spend time and money training employees on how to do taxes.
Structuring your company as an LLC is a task you can do yourself inexpensively. Structuring as an LLC means less paperwork, a lower tax burden, and the protection of your personal assets. If you’re looking for a user-friendly and economical way to file, you can hire a formation service. Visit Incorporation Guru to learn about top formation services.
Outsourcing inventory management can be done at a lower cost than hiring an in-house person. Outsourced managers are trained and experienced in the field, so they can do the work more efficiently than someone who is new to it. Or, you can purchase software that can do the job for you, too. Inventory management software syncs in real-time, meaning you get seamless transactions whether your customers shop online or in your store.
Knowing exactly what your financials entail, structuring your business as an LLC to lessen your paperwork, outsourcing where it makes sense, like payroll, and taking advantage of software that can manage some of the tasks for you means you’re able to spend more time on what you do best, growing your business.