It can be difficult to manage business finances, especially if you are a small business owner and not familiar with accounting. Whether you are learning to manage your finances yourself or you want to understand finances being managed by an accountant, there are basic things you should know about business finances.
Terms to Know
There are some terms you need to know to be successful in managing your finances. While these are not the only financial terms you should know, they are important.
- Expenses are everything that has to be paid by your business. It includes things like rent, payroll, taxes, debts, utilities, and other operating costs.
- Gross revenue is the total money coming into your business (before taxes, deductions, and expenses).
- Net profit is the money coming into your business after all expenses and deductions are taken care of from your gross revenue.
- Cash flow is a term used to refer to the difference between the cash you have available at the beginning of an accounting period compared to what is available at the end of the same period.
- Break-even point is the point at which your revenue and expenses are equal (no profit or loss).
Documents to Use
The more complex your business, the more complex your financial management. But even the most complex financial management utilizes these important documents.
- Balance sheet: An overview of your business’s finances at any given moment.
- Income statement: A summary of your revenue and expenses over a fiscal year.
- Cash flow statement: A summary of the movement of cash in and out of the business during a specific time period.
- Revenue forecast: A prediction about your business’s finances for the coming year.
The more you know about your business finances, the easier it will be to manage your organization and achieve your financial goals. Learning these terms is a good place to start.
