{"id":745,"date":"2022-04-29T05:58:55","date_gmt":"2022-04-29T05:58:55","guid":{"rendered":"https:\/\/www.agilisbooks.com.au\/?p=745"},"modified":"2022-04-29T05:58:55","modified_gmt":"2022-04-29T05:58:55","slug":"making-sure-your-new-business-finances-are-in-order","status":"publish","type":"post","link":"https:\/\/agilisbooks.com.au\/?p=745","title":{"rendered":"Making Sure Your New Business Finances Are In Order"},"content":{"rendered":"

Do you know your Profit & Loss Statement from your Balance Sheet?\u00a0<\/span><\/h2>\n

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If not, don\u2019t fear \u2013 Agilis Books can get your start-up to speed on all the basics of company financial accounting<\/span><\/h2>\n

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Getting your head around the basics of bookkeeping, accounting and good financial practice may not come naturally to all business owners \u2013 but the better you understand the numbers, the more control you’ll have over your business and your decision-making.<\/span><\/p>\n

To get you started, here\u2019s a rundown of some of the main financial terms and how they apply to the financial management of your start-up.<\/span><\/p>\n

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Revenue and Money Coming<\/b> into<\/b> The Business<\/b><\/h3>\n

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Most of us understand that revenue is the income you generate through your sales. If you multiply your average sale price by the number of units sold, this is the top-level number you get. It\u2019s a gross figure (i.e., before any deductions) and gives you a clear idea of how much money the business is generating through its sales activity.<\/span><\/p>\n

Revenue can come from various sources, and each income source is known as a \u2018revenue stream\u2019. Revenue streams could include product sales, income from services you provide, income from intellectual property you own (like patents) or income from assets the business owns – like property you rent out at a profit.<\/span><\/p>\n

Having several revenue streams is a good idea, as it spreads your income generation across multiple areas and reduces the risk of one revenue stream drying up.<\/span><\/p>\n

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Expenditure and Money Going out of the Business<\/b><\/h3>\n

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Expenditure refers to any payments you make (either in cash or credit) against the purchase of goods and\/or services. In a nutshell, expenditure is the money that\u2019s going <\/span>out<\/span><\/i> of the business, so it\u2019s important to have a good grip on these costs and to make sure you\u2019re not spending any more money than you need to.<\/span><\/p>\n

Costs that would fall under expenses include your supplier bills, your payroll expenses, your operational overheads and the costs of any raw materials and goods you buy to keep the business running. The less you pay out in these expenses and overheads, the more of your revenue will end up as profit \u2013 as we\u2019ll see in the next section.<\/span><\/p>\n

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Profit and Loss (P&L)<\/b><\/h3>\n

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Your <\/span>Profit and Loss Statement<\/span><\/a> (usually referred to as your P&L) is an incredibly important financial report to get your head around. The P&L summarises your revenues and expenditure over the course of a period \u2013 usually for the month, quarter or year that\u2019s just ended \u2013 and gives you a breakdown of the profits and losses the business made during that period.<\/span><\/p>\n

If you make more in sales revenues than you spend in outgoing expenses, you make a profit (and that\u2019s vital to your success). For any business to be financially viable, your financial model MUST be able to generate profit. Without profits, the business can\u2019t make money, you can\u2019t reinvest back into the company to drive growth, and you (personally) won\u2019t get paid anything.<\/span><\/p>\n

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Cash Flow Statements and Positive Cash Flow<\/b><\/h3>\n

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Your cash flow statement is another vital tool in your accounting toolbox. To keep the lights on in the business, you need enough available cash to cover your everyday expenses. Your cash flow statement shows you the cash inflows (money coming into the business from revenues etc.) alongside the cash outflows (payments to suppliers, or operational overheads etc).<\/span><\/p>\n

For the business to have enough cash in the pot, your cash inflows MUST outweigh your cash outflows. This is called being in a \u2018positive cash flow position\u2019 and it\u2019s a level of financial health that every start-up should aim for. By tracking inflows and outflows, and projecting them forwards in time to create forecasts, you can make sure there\u2019s always available cash in the business.<\/span><\/p>\n

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Improving your Understanding of the Numbers<\/b><\/h3>\n

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It takes time to pick up the financial jargon and accounting terms that will help you understand your accounts – but don\u2019t worry, as your start-up journey evolves, you\u2019ll gradually begin to get your head around the important numbers, metrics, and reports.<\/span><\/p>\n

Other important finance terms to understand include:\u00a0<\/span><\/p>\n

Turnover<\/b><\/span>\u00a0= the total sales revenue made in a period. It\u2019s also sometimes called \u2018gross revenue\u2019, as it\u2019s the number prior to any deductions being made.<\/span><\/p>\n

Assets<\/b><\/span>\u00a0= the things you own in the business, like equipment, property, or cash etc.<\/span><\/p>\n

Liabilities<\/strong><\/span>\u00a0= the things you owe to other people, like bills, debts, and loan repayments.<\/span><\/p>\n

Balance Sheet<\/b>\u00a0<\/span><\/span>= a snapshot of your assets and liabilities on a given date.<\/span><\/p>\n

Working Capital<\/b><\/span>\u00a0<\/span>= your current assets minus your liabilities. In common usage, it\u2019s the capital (money) you have in the business to keep the company operational and trading.<\/span><\/p>\n

Funding<\/b><\/span>\u00a0= bringing additional capital into the business, usually in the form of business finance products like loans, or through private investment from outside sources.<\/span><\/p>\n

Credit Score<\/b><\/span>\u00a0<\/span>= a rating given to the financial health and risk level of the business. The bigger the score, the lower the risk \u2013 and the better your access to funding.<\/span><\/p>\n

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Talk to Agilis Books About Understanding Your Financial Management\u00a0<\/b><\/h3>\n

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If you\u2019re planning for your business, <\/span>contact Agilis Books<\/span><\/a> today – we\u2019ll help you set up the ideal accounting system so you\u2019re in complete control of your finances using only the best accounting software, and help you understand the main relevant financial terms and how they apply to the financial management of your start-up.<\/span><\/p>\n

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This blog was originally published by BOMA, but has had edits made by Agilis Books for the benefit of our readers.\u00a0<\/b><\/p>\n

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Do you know your Profit & Loss Statement from your Balance Sheet?\u00a0   If not, don\u2019t fear \u2013 Agilis Books can get your start-up to speed on all the basics of company financial accounting  <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[5,12,4],"tags":[],"class_list":["post-745","post","type-post","status-publish","format-standard","hentry","category-financial","category-financial-accounting","category-small-business"],"_links":{"self":[{"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=\/wp\/v2\/posts\/745","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=745"}],"version-history":[{"count":0,"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=\/wp\/v2\/posts\/745\/revisions"}],"wp:attachment":[{"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=745"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=745"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/agilisbooks.com.au\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=745"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}