| Business owners rarely go into business
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| | for owner investments and
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| to deal with the financial aspects of
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| | withdrawals.Often times the two concepts
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| running a business. It's easy to
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| | of cash and profit are not clearly
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| understand why! You are passionate about
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| | defined for small business owners;
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| the products or services you provide and
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| | therefore, you don't have a good handle
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| want to focus your time there. The
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| | on your finances and how to interpret any
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| financial aspect usually falls to the
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| | outcomes from financial reporting. You
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| bottom of the "desired responsibilities"
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| | can show a profit and have a negative
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| list. It is critical to the long-term
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| | cash flow if your loan payments, owner
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| success of your business that you
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| | withdrawals, and other non-expense
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| understand some of the Financial
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| | activities are taking more cash out of
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| Fundamentals of being a business owner
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| | your business than you have profit. Same
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| though. You don't have to be an
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| | goes for the opposite flow, you can have
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| accountant or financial analyst, but it
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| | a lot of cash coming into the business
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| is important that you have some key
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| | through an increase in personal or
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| skills in your business toolkit to
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| | lender-financed activities vs. revenues.
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| measure the financial aspects of your
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| | The most basic of cash flow statement
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| business. It's okay to outsource this
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| | information can be outlined as Beginning
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| activity so that someone else can do the
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| | Cash Balance + Cash Inflows - Cash
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| work you don't like to do, but make sure
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| | Outflows = Ending Cash Balance. It's
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| you understand the output of the
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| | important for you to understand the
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| financial information. You'll need it to
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| | concept of your Profit/Loss Statement and
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| help you make informed decisions about
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| | your Cash Flow Statement. They provide
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| your business. Remember! Accounting is
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| | two different views of our business.The
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| not just about taxes. There's so much
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| | third financial statement you should be
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| more to know about the numbers, so you'll
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| | preparing monthly is the Balance Sheet.
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| know how your business is doing from the
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| | The Balance Sheet provides information on
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| management perspective.There are a
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| | your Assets, Liabilities and Equity.
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| variety of key aspects of your financial
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| | Assets are what you own that is of value.
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| picture that you need to be aware of and
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| | Examples include Bank Accounts, Accounts
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| they can be outlined based upon the three
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| | Receivable, Inventory, Property, Plant,
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| critical financial statements: Profit
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| | and Equipment. Liabilities represent your
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| Loss, Cash Flow, and Balance Sheet.I meet
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| | obligations to others. Examples of
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| with entrepreneurs every day that are
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| | liabilities include Accounts Payable,
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| unsure of their profitability. They
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| | Notes Payable to Lenders, Loans from
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| "think" they are making money because
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| | Shareholders, etc. The Equity balance
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| they have money in their checking
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| | reflects the value of your ownership in
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| account. This is NOT how you should be
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| | our business. When you take the value of
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| running your business. Having money in
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| | the assets less the value of your
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| your checking account doesn't mean you
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| | liabilities, the remainder is your
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| are profitable. It could mean you haven't
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| | equity.It doesn't matter the size of your
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| paid all the bills so you have a little
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| | business, profitability and ongoing
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| cash. Cash and profit are two different
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| | financial stability is something you
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| concepts. If you aren't profitable, you
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| | should be monitoring on a regular monthly
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| won't have longevity in your business.So
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| | basis. Some will say that they are too
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| what is the difference between profit and
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| | small for creating financial statements.
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| cash? Profits are determined through an
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| | That is your way of not holding yourself
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| equation of Revenues - Cost of Goods Sold
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| | accountable to managing your business
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| = Gross Profit - Overhead Expenses = Net
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| | wisely. It'll always be someone else's
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| Profit. This equation is the makeup of
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| | fault when your business fails...or at
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| your Profit/Loss Statement. Revenues are
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| | least that is what you'll say. Though it
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| dollars from generating sales within your
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| | won't be the truth, it'll be your fault
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| business. Cost of Goods Sold reflects the
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| | for not managing your business wisely.
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| direct costs for labor and materials
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| | You can choose to succeed, or to choose
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| incurred in your business. Overhead
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| | to fail. It is always a choice, not a
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| Expenses are all those other costs that
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| | default. So make the choice to be a
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| you incur so that your business can
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| | financially informed business owner. Your
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| function (i.e. Rent, Taxes, Insurance,
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| | business will thank you through increased
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| Marketing, Accounting, etc.)You can have
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| | profitability and longevity!Contact: Pam
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| activities that affect cash but are not
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| | is the author of Out of the Red, a book
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| considered revenues or expenses. For
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| | that covers various important aspects of
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| example, when you borrow money from a
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| | management accounting for small business
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| lender, it is not considered income. It
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| | owners. Topics include Break-Even Point,
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| is classified as an increase in your
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| | Cash vs. Profit, Budgeting, and more. To
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| liabilities (i.e. debt). When you repay
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| | order your copy, call 816.304.4398.For
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| that loan, it will not be considered an
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| | more information, you can visit the
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| expense. It is a reduction in your
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| | website at Newman is a Certified
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| liability. Any interest you might incur
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| | Management Accountant, Author, and
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| on that loan would be classified as
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| | Certified QuickBooks(R) ProAdvisor for
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| interest expense, but the principal
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| | Financial and Point-of-Sale software.
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| portion is not. Similar concept applies
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|
