Some entrepreneurs are as of now money related specialists: they may have advanced accounting degrees, involvement in the private area or solid education in everything identified with overseeing independent venture funds. However, many business owners and entrepreneurs aren’t as lucky. Many need assistance with the operation’s financing, and this is to be expected in most cases. If managing the finances of your endeavor seems overwhelming, Ann Puig, a successful business owner and philanthropist has prepared some guidance on how to manage a small business’s finances smartly.
There are some terms that most business owners are already familiar with – gross revenue, expenses and net profit. The break-even point is one that may not be as recognizable. Most businesses, as they’re getting started, will operate at a loss for the first couple of years. Expenses are typically greater than revenue during this time, but when the company reaches a point that total revenue equals total expenses, this is the break-even point and typically marks the beginning of true revenue generation.
Additionally called all out income, your gross income is the whole of all monies you’ve gotten from clients in return for your item or administration, before taking any derivations or costs, (for example, lease, cost of products sold, charges, and so on.).
There is a lot of paperwork when managing a small business – accounting documents for business taxes and financing, as well as for tracking revenue, expenses and profitability. However, there are four key accounting documents that every small business owner needs to manage with a great deal of care and responsibility.
The first is the balance sheet. This is a virtual “snapshot” of the financial standing of the business at any given moment. It includes all assets, liabilities and equity held by the company and is how the net worth of the business is ascertained. Says Puig, “Maintaining a balanced balance sheet is the foundation of basic bookkeeping and is what will help you make the proper decisions to see the business grow.”
In addition to the balance sheet, every business needs to maintain an income statement, or profit and loss statement. This summarizes the revenues and expenses of the business over a year, which will allow for the proper calculations of net profit or loss for that year. An income sheet is also a valuable tool for monitoring when the break-even point is reached, as well as to measure profitability over time.
The third important accounting document is the cash flow statement. “The cash flow statement,” explains Puig, “gives the business owner an instant view of how much cash is on hand at any time to cover expenses. It shows the inflow of revenue and the outflow of expenses from all activities and is often organized by time – a month or fiscal quarter.”
In order to ascertain where the company is headed and what it can afford, the fourth document, the revenue forecast, is a valuable asset. It will show if new employees can be hired or if there is a budget for a new marketing campaign. Explains Puig, “The revenue forecast is a prediction, based on financial analysis, of what will be possible in the upcoming year. It will allow you to estimate how much can be spent and what the possible profit margin will be.”
There’s nothing wrong with bringing in a little outside help to assist with the books. A specialized bookkeeper can be valuable in ensuring that the company’s finances are on track and can offer advice on what changes can, and should, be made. Regardless of what obligations you choose to hand over, it’s fundamental that you stay involved with the finances and employ checks and balances that can prevent fraud or business identity theft. Says Puig, “While you might be anxious to get as much financial management off your plate as could reasonably be expected, ultimately it’s your business and your success or failure.”