You started your small business because you’re great at something – you create amazing desserts, you can fix any car on the road, you take wonderful photographs, or you build one-of-a-kind furniture. But being great at what you do isn’t the only factor in your success. For your business to succeed and grow, you need to understand your financial story. That can strike fear into the heart of numberphobic business owners – but it doesn’t have to.
You don’t need a degree in finance to understand your key financial data. But it is helpful to have a working knowledge of some basic accounting terminology and practices. A good place to start is the three most important financial statements for any business.
- Balance sheet – provides a snapshot of your finances on any given day.
- Income statement – shows your business performance over a defined period of time.
- Cash flow statement – indicates how changes in your balance sheet and income statement affect cash.
And here are some of the most common accounting terms related to these statements.
- Accounts payable – the money you owe to other people.
- Accounts receivable – the money other people owe you.
- Fixed costs – costs that stay the same whether your business goes up or down. Examples include rent, salaries, and insurance.
- Variable costs – costs that change based on business volume. Examples include materials and shipping.
- Assets – anything owned by your business.
- Liabilities – money or services you owe to someone else.
- Revenue – the money you make by selling a product or providing a service. Revenue does not take expenses into account.
- Gross profit – your revenue minus the cost of the product or service you provide.
- Net profit – your gross profit minus all other expenses. Net profit can also be called net income or net earnings.
Understanding the basics of accounting can make keeping up with your finances a lot less scary – and a lot less stressful. And that can free you up to focus more of your time and energy on the things you’re great at, whether that’s taking pictures or making cakes.
A cloud-based accounting solution like Sage Intacct can give you the information you need to have a good grasp of your financial health. Access to real-time data means you don’t have to rely on outdated information to make important decisions. Custom dashboards and reports give you an in-depth view of your financial story that’s easy to understand. And eliminating spreadsheets means you don’t have to waste time on manual data entry and correcting formula errors. To find out more, call MicroAccounting today at 855.876.3773, or email us at email@example.com.