What is Accounting About?
The first thing to know is that there are three financial reports that you need to get your head around: The Income Statement, The Balance Sheet and The Cash Flow Statement.
Income Statement or How To Become Profitable?
Your income is reflecting how your business is performing. In very simple words: Income Statement equals Performance. Once you understand this concept, you will be able to know what is going on in your company, and then decide what minor or major changes you can make to improve your bottom line. For example you will be able to find out whether you have the right mix of staff, or if there are product lines that, which are not profitable. Additionally, you will be able to assess if you have the right pricing, or if your overheads can be improved or it is already in line with industry standards. You can also find out if there is a black hole damaging your profits. Then, there is the control issue. Who is controlling your business? Do you have the right controls in place? When you understand and grasp what is going on with the finances of the business, you will easily see if there is some area in your business where you need to focus on. Have you thought that may be someone can be stealing from you, even at an insignificant level? This happens more often than you think and unfortunately the business owner is not even aware of it.
When it comes to forecasting the profitability of your business, it means taking a step forward in the future and foresee what it is capable of. And this is the reason why when you understand what accounting is about, you will be more at ease with your business finances whether it is to understand balance sheet or income statement or when you are applying for a business loan.
Understand Balance Sheet or How You Run Your Business
Whilst the income statement tells you about your profitability and helps you to determine your strategy, the Balance Sheet Shows how what are the assets you are using to operate your business and also how you finance it.
Being able to understand balance sheet is the key that opens the doors for getting sources of finances for small business or large business, no matter how big your business is.
The balance sheet is split in two sides: assets and liabilities. Whilst the assets are a reflection of what you own in your business, the liability side tells what you owe, meaning how you finance or fund your business. Whenever you are applying for a business loan, there are two things you want to show: 1. You have a smooth operating system which will be shown in how much you invested in your assets and how you manage them 2. You have a strong funding profile which means in very simple terms, you have used a large amount of capital to finance it and that your level of debt is not very high and if you do have a large amount of debt, it is structured in such a way that you can easily pay your debt back.
Cash Flow Statement or the Art of Forecasting.
And this is where understanding cash flow statement becomes handy. Why? Well this is this financial report which will tell the story about your capacity to pay back your debt. As after all expenses incurred, you can look how much cash you have left and see if there is enough to either pay back your debt. This is what any lender will do to decide if you can additional funding or not. You can also you use it to find out if you cash inflows are strong enough or if there are any changes you need to make in your business to increase it as you don't necessary need a loan to get more cash. As you will easily find out once you understand accounting, you can extra funding just by focusing on specific areas of your business and without taking additional funding!
Well, you just had an introduction to business finance and I believe you would agree with me that once you understand what accounting is about, knowing how to manage your business becomes clearer. The solution for your as a business owner is to become educated and get training. Don't wait and go and get ready to explode your business NOW!
Business Finances Made Easy's mission is to help business owners getting an accurate understanding of their business finances. This will allow them to be able to discuss their business finances at any time with confidence and will help them to get additional funding on demand.The first thing to know is that there are three financial reports that you need to get your head around: The Income Statement, The Balance Sheet and The Cash Flow Statement.
Income Statement or How To Become Profitable?
Your income is reflecting how your business is performing. In very simple words: Income Statement equals Performance. Once you understand this concept, you will be able to know what is going on in your company, and then decide what minor or major changes you can make to improve your bottom line. For example you will be able to find out whether you have the right mix of staff, or if there are product lines that, which are not profitable. Additionally, you will be able to assess if you have the right pricing, or if your overheads can be improved or it is already in line with industry standards. You can also find out if there is a black hole damaging your profits. Then, there is the control issue. Who is controlling your business? Do you have the right controls in place? When you understand and grasp what is going on with the finances of the business, you will easily see if there is some area in your business where you need to focus on. Have you thought that may be someone can be stealing from you, even at an insignificant level? This happens more often than you think and unfortunately the business owner is not even aware of it.
When it comes to forecasting the profitability of your business, it means taking a step forward in the future and foresee what it is capable of. And this is the reason why when you understand what accounting is about, you will be more at ease with your business finances whether it is to understand balance sheet or income statement or when you are applying for a business loan.
Understand Balance Sheet or How You Run Your Business
Whilst the income statement tells you about your profitability and helps you to determine your strategy, the Balance Sheet Shows how what are the assets you are using to operate your business and also how you finance it.
Being able to understand balance sheet is the key that opens the doors for getting sources of finances for small business or large business, no matter how big your business is.
The balance sheet is split in two sides: assets and liabilities. Whilst the assets are a reflection of what you own in your business, the liability side tells what you owe, meaning how you finance or fund your business. Whenever you are applying for a business loan, there are two things you want to show: 1. You have a smooth operating system which will be shown in how much you invested in your assets and how you manage them 2. You have a strong funding profile which means in very simple terms, you have used a large amount of capital to finance it and that your level of debt is not very high and if you do have a large amount of debt, it is structured in such a way that you can easily pay your debt back.
Cash Flow Statement or the Art of Forecasting.
And this is where understanding cash flow statement becomes handy. Why? Well this is this financial report which will tell the story about your capacity to pay back your debt. As after all expenses incurred, you can look how much cash you have left and see if there is enough to either pay back your debt. This is what any lender will do to decide if you can additional funding or not. You can also you use it to find out if you cash inflows are strong enough or if there are any changes you need to make in your business to increase it as you don't necessary need a loan to get more cash. As you will easily find out once you understand accounting, you can extra funding just by focusing on specific areas of your business and without taking additional funding!
Well, you just had an introduction to business finance and I believe you would agree with me that once you understand what accounting is about, knowing how to manage your business becomes clearer. The solution for your as a business owner is to become educated and get training. Don't wait and go and get ready to explode your business NOW!
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