How to Manage Your Small Business Finances
Sound financial management can be difficult to achieve as a small business owner. This is especially true when you’re an expert in your area of business but not necessarily the financial ins and outs of operating your own company. Whether you have no financial background or earned an MBA, the tips below can help you stay on track with small business financial management.
Basic Accounting Terms and Business Financial Management Documents
After you start keeping the books for your business, it won’t take long to see that certain terms keep popping up. These typically include the following:
- Break-Even Point: It’s common for new small businesses to operate at a loss, even for a couple of years. Your business has reached the break-even point when revenue finally matches expenses. It becomes profitable when revenue is higher than the expenses.
- Cash Flow: This refers to the amount of money your company has on hand to meets its everyday expenses, deal with an emergency, or make an investment. Even a profitable company can have a negative cash flow and fail to meet these expenses.
- Expenses: This description covers everything that your company must pay before it can earn a profit. Common examples include payroll, heating and cooling, taxes, inventory, and materials.
- Gross Revenue: Your company’s gross revenue is the amount it earns before deducting any expenses.
- Net Profit: Sometimes referred to as a company’s bottom line, this is the amount of money left over after meeting all expenses. It can be a positive or negative number.
It’s also important to understand the following types of documents:
- Balance Sheet: This document lists your company’s assets, liabilities, and equity for a specified reporting period.
- Cash Flow Statement: This statement shows the inflow and outflow of revenue during a specified reporting period, typically one quarter of the year at a time.
- Income Statement: Also called a Profit and Loss Statement, this document provides a summary of business expenses and revenue over the course of a year.
- Revenue Forecast: Projecting your company’s revenue up to a year in advance helps you determine if you can take certain actions while staying within your budget.
Need more financial management tips? Schedule an appointment with a consultant at Fintrus today.