If you are an entrepreneur, managing partner, CEO or general manager, you are already managing the finances of your business.
And, unlike hired professionals, it’s your money. And mistakes and failures are paid from your pocket. So who better to control and manage your finances than you?
The consulting firm EMyth studied over 300,000 small businesses in 23 countries and found out that 80% of businesses face cash flow problems and “cash gaps.”
Yet the most successful entrepreneurs and small business owners, like those who own services with ऑनलाइन रूलेट कैसिनो, have a few common traits.
- They regularly use financial statements (Income Statement and Balance Sheet) to monitor and make decisions. And the most successful ones also use a dashboard of key metrics that track additional leading indicators and performance measures.
- Experienced entrepreneurs look at the whole business very differently than beginners. They see and evaluate the state, results, and capabilities of the business as a whole.
You don’t need to be a certified public accountant to control and manage your finances. It is enough to understand and apply a few basic rules and concepts. Know your key financial indicators. Know what and how indicators are made up and how you can influence them. And since all indicators are interrelated, it is better and faster to put them into a system at once.
Two conditions are necessary for the stable operation of a business:
- Be profitable or break-even.
- Remain solvent, that is, to be able to pay its obligations and pay back loans, if any.
The final profit is made up of profits from sales. And the first thing to analyze is whether all sales are profitable. There are reasons when it is worth selling at a loss. For example, to turn stale inventory into money. But it’s worth doing it consciously. The cumulative gross profit should be enough to cover the overhead costs of the business. This is what is called the breakeven point. Giving discounts, you may be able to increase sales turnover, but you will definitely cut your gross profit.
And the second question: how much you need to increase sales to offset discounts. You can use a free calculator to estimate the impact of price and discounts on gross profit.
Rules for Organizing Control Over Finances
Separate the Owner’s Money From the Business’ Money
That doesn’t mean you shouldn’t invest and take money out of the business. It means counting them separately. And account for both investments and withdrawals by the owner. Then there will be no confusion with the income and expenses of the business, and hence the calculation of profit or loss. For example, the business worked in the black, but the owners took away more.
Divide Business Activities Into 3 Types
- Financial activities are about investing and withdrawing money by owners and taking and repaying credit and loans.
- Capital activities (also called investment activities) are the acquisition or creation of resources for long-term business use.
- Operating activities are the primary activities of making money.
Follow the Principle of Recording Transactions
There are 2 types of financial accounting organization:
- Incomplete simplified financial accounting.
- Balance sheet-based financial accounting, also called the double-entry method of recording transactions.
Incomplete, or “simple” financial accounting is accounting for money only. So much was, so much was received, so much was spent, so much was left. And receipts are often referred to as income and payments as expenses. In fact, such accounting only seems simpler at first glance. And it carries a lot of pitfalls for the entrepreneur.
First, it confuses the entrepreneur. And the difference between income and spending money can be counted as profit. And, honestly deluded, spend it. And run into a cash gap. Receipts of loans or advances from customers are not income. Loans need to be repaid, and advances need to be worked off.
Second, you have to remember somewhere separately who and how much is owed to you or to whom and how much your business owes. Or not to remember and run into trouble and cash gaps.
Third, you have to keep property and inventory records somewhere separately. There’s some mystique. You don’t control the cash register or the warehouse – suddenly shortages pop up. That is, the rules of control that were just talked about are not followed.
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