A List of Financial Concepts Every Business Owner Should Understand

An entrepreneur has various skills of running a business. Business people have natural talents that can help to come up with ideas to increase the level of production. In every industry, you must prepare financial statements to manage your growth. As a good business owner, you should employ an accountant to maintain the accounting software. However, you should also be conversant with some various financial concepts as follows;

1. Cash Flow
The statement shows the flow of money in and out of business within a specific period. Many of the small business owners have no idea of the whereabouts of some money at different periods. Cash Flow covers various main activities, like investing, operating, financing, and supplemental information.

2. Liabilities 
During operation, a business can involve in some debts to help in numerous activities, like maintaining the operations and growth. Some of the credits include bank debts, credit card debts, and cash owned to product manufacturers. You can divide liabilities into long-term and current debts. Current-debts refer to money owned to suppliers while the long-term obligations are payable with more than one financial year.

3. Balance Sheet 
A balance sheet is a quick review of your business performance. Also, the statement shows the financial health of your business at a given period. A balance sheet shows the number of assets as compared to liabilities of the company. On the asset side, you include things, like cash, receivables, machinery, furniture, computer equipment, leasehold improvements, and office fixtures. On the other hand are the liquid payable, government loans, and bank loans. The balance sheet shows the available funds to run the business in the short-term and helps the owner to make informed financial decisions.

4. Costs in Business and Margins
You will find that the cost of production keeps changing depending on the shipping and labor cost and exchange rates and handling fees. The change in the economy can affect the customer’s willingness to pay the price. Therefore, a business owner should act immediately to adjust the costs and give room for a stronger profit margin.

5. Income Statements 
The statement is a report of the profitability of a business within a given period. You can refer to the account as a profit and loss statement. The statements highlight all the business revenues and expenses. You can use the report to calculate the amount of tax payable to the government.

You do not need to be a professional expert in handling financial matters. However, you need to be aware of some of these financial terms that will get discussed during business forums by colleagues, investors, and partners. To ensure the future business success, you should observe budget maintenance and financial reports.

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