Make sure your new business finances are in order
We in the Lombard Accountants office know from working with new businesses that getting your head around the basics of bookkeeping, accounting and good financial practice may not come naturally to all business owners. But the better you understand the numbers, the more control you’ll have over your business and your decision-making.
To get you started, here’s a rundown of some of the main financial terms and how they apply to the financial management of your startup from the Lombard Accountants team:
Revenue and money coming into the business
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’s 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.
Expenditure and money going out of the business
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’s going OUT of the business, so it’s important to have a good grip on these costs and to make sure you’re not spending any more money than you need to.
Profit and loss (P&L)
Your profit and loss statement (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 – usually for the month, quarter or year that’s just ended – and gives you a breakdown of the profits and losses the business made during that period.
Cash flow statements and positive cashflow
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).
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