Do you know your financials

Understanding your key financials

Ok you will likely have heard the phrase Cash is King…. But I am here to tell you whilst it is extremely important it is not the only thing you need to know when it comes to the financials within your business. 

I have worked with 3 business owners in the last quarter who were all running their business based simply on cash in the bank. Whilst it’s not the worst thing in the world to do, there are more key financials that you need to be aware of than just the cash in the bank. 

As a business owner, understanding your finances is crucial to the success of your business. Knowing the key financials will enable you to make informed decisions, avoid financial pitfalls, and plan for the future. Here are some of the key financials that you should be familiar with:

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Turnover to Profit…

  1. Turnover: Turnover is the total income generated by your business. It is the top line of your profit and loss report and is a critical metric to track as it reflects the health of your business.
  2. Expenses: Expenses are the costs incurred to run your business. This includes rent, wages, supplies, and other expenses. Tracking expenses will help you identify areas where you can reduce costs and improve profitability.
  3. Profit: Profit is the difference between turnover and expenses. It is the bottom line of your profit and loss and reflects how much money your business has left over after all the expenses are paid.
  4. Cash flow: Cash flow is the amount of money that flows in and out of your business. It is important to track cash flow as it indicates whether your business has enough cash on hand to pay bills and invest in growth.
  5. Accounts receivable: Accounts receivable are the payments owed to your business by customers who have not yet paid their invoices. It is important to monitor accounts receivable as it affects your cash flow and can impact your ability to pay bills.
  6. Accounts payable: Accounts payable are the payments that your business owes to suppliers and vendors. It is essential to manage accounts payable to avoid late payment fees and maintain good relationships with suppliers.
  7. Taxes: Taxes are mandatory payments that individuals and businesses are required to make to the government. There are different types of taxes, including income tax, corporation tax, council tax/rates, VAT and PAYE taxes plus many more.  Failure to pay taxes can result in penalties, fines, and even legal action so it is important to know what taxes apply to you and your business and plan accordingly to ensure you meet your obligations. 

Manage your business more effectively…

Getting to grips with how to manage your finances

Understanding these key financials will help you manage your business more effectively, make informed decisions, and plan for the future. Keeping accurate records and monitoring these financials regularly will help you identify potential issues early on and take corrective action before they become major problems. As a business owner, your finances are a vital tool for success, so make sure you take the time to understand and manage them effectively.

You should be able to identify this by speaking to your accountant but if you need help getting to grips with how to manage your finances and your business effectively then please reach out for help.