THE LANGUAGE OF BUSINESS
One of the biggest concerns when starting a new business is knowing where, when, how and what needs to be documented and recorded, particularly regarding tax.
It's a critical part of running a business, but there's really nothing to fear. Used correctly, accounting and book-keeping not only keeps you compliant, but will help identify potential problems, inefficiencies, and growth opportunities.
Accountancy is the recording, analysing, reporting and communicating of a business’s financial and economic information. This is reported as the following:
• Revenue / sales – all transactions by the business from selling your products and/or services.
• Expenses – any transactions incurred to run your business.
• Assets – this measures i) the fair value of equipment or premises you own to produce your product or carry out your service, ii) monies owed to you from customers, iii) cash held in your bank (assuming this is in the black)
• Liabilities – any debts of the business, including loans, financing etc.
• Equity – this represents the money the owners would be left with if all assets & liabilities were sold & settled.
• Income Statement/Profit and Loss Account (P&L) – this shows you whether your business is growing or slowing. Most businesses typically produce a P&L on a monthly basis to track performance in the prior month. This report gives business owners a sense check on the underlying trajectory of the business and whether there is a need to review costs or invest further to drive growth.
• Balance Sheet – this is laid out in a ‘T’ shape and is called a balance sheet because it should balance on each side, like a pair of scales, to account for all the transactions in and out of the business. These can be produced either at the end of the financial year or at the end of every month to keep a closer eye on your finances.
• Cash Flow Statement – this is a vital report you should have access to as bad cash flow is where most new businesses trip up. This gives you a much better idea of what is really going on in your business and how much cash you are owed and have available right now. This can help you make important decisions about expenditure for growth. Remember – “Revenue is vanity, profit is sanity, cash is King!”
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