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Added for You - Reading Your Financial Statements: What Every Entrepreneur Must Know
Up is the trend and sky is the limit. No, we are not talking about the EPL and its ever-increasing fanatic followers. This goes to signify the scope and effect of online retailing. Nigh is the festive and holiday season, and the projections on the basis of research conducted have already indicated that best ever festive season for online shopping and retailing is around the corner.Take a look on the IMRG forecast that suggests a growth of 36% in e-commerce with sales worth ₤26bn in the year 2006. With this in sight, online shopping has pierced much deeper tha
More to the point for deciding which business entities to use is that you need to work out both your personal financial statements and those of your business(es). If you find, for example, that that you have significant salary or wage income in your personal financial statements that is causing you to pay out high taxes (as reflected in your balance sheet), and you expect that your business will generate some significant losses for the first several years, it would be advantageous to you to use a business entity that is a flow-through entity. Losses incurred by your S-Corporation (or, if you prefer, your Limited Partnership or your Limited Liability Company) will flow onto your personal bala
Marketing is the profession I chose in college. Yes, I am one of the few people who is actually working in the field she studied in school!Why did I choose marketing? Why do I still enjoy it after 21 years?Here are the Top 10 Reasons I Love Marketing.(1) It's never boring. No two days are ever the same. Because no two projects are ever the same. And, because no two clients are ever the same. So even if I am doing the same task there are always enough variables to keep in interesting.(2) It's creative. Marketing is about generating ideas. It's
Knowing how to do this is an essential skill not just for entrepreneurs but for everyone. However, for the entrepreneur having this skill can mean the difference between having a thriving business that continues to thrive and winding up in bankruptcy. The annals of the bankruptcy courts are strewn with cases of entrepreneurs who entrusted their accounting to others and, not knowing how to read the financial statements of their own businesses, were surprised when they found that the business was ultimately unsustainable. The purpose of this article is to help prevent this from happening to you--and to arm you with the skills you need to structure your business to your benefit from the outset.
Your Two Major Financial Statements
There are two major financial statements that every entrepreneur should know how to read and (ideally) prepare or have prepared in their financial software (we recommend QuickBooks):
The Income Statement
The Income Statement (also known as the P&L or Profit and Loss Statement) offers a dynamic picture of the ebb and flow of your finances. Briefly, income statement shows first: A. Your various sources of income Then subtracts from that, B. Your expenses To give you the net result: Net Profit or Loss Typically, it is the result shown on this statement that is the basis for your taxation by state and federal authorities at the end of the year. The net income or loss (revenue outgo) is carried over onto your second major financial statement: The Balance Sheet.
The Balance Sheet
Offers you a snapshot of cumulative results of your financial activities. It is made up of two columns:
On the left side you have your Assets
On the right are listed your Liabilities and Owners/Shareholders Equity (or ownership in the business). The two columns must be in balance, which is why this is called a Balance Sheet.
Assets=Liabilities + Equity
It's really quite logical how the Income Statement and Balance Sheet relate to one another.
If you have to use current or long-term assets to pay ongoing expenses during the current year, at the end of the year, the amount of your assets will be reduced by the amount of net loss. On the right hand side, your Equity has gone down too. If you borrowed, say $10,000 to pay current operating expenses, at year end, your assets remain the same, but your liabilities have increased by $10,000, lowering your net Equity or ownership in the company by that same $10,000.
It doesn't take a rocket scientist to figure out that if you continue on this path, you will quickly be in a very painful situation, because Liabilities carry their own cost. The cost of borrowing money is Interest, and if you are fortunate enough to borrow at only 10% interest (on unsecured debt) today, a year from now, you will have to pay $11,000 to pay off the original $10,000 debt. This reduces your equity still further--unless you have used the borrowed funds to create more assets that increase in value at the same rate as the interest on your debt or, better yet--at a higher rate.
More to the point for deciding which business entities to use is that you need to work out both your personal financial statements and those of your business(es). If you find, for example, that that you have significant salary or wage income in your personal financial statements that is causing you to pay out high taxes (as reflected in your balance sheet), and you expect that your business will generate some significant losses for the first several years, it would be advantageous to you to use a business entity that is a flow-through entity. Losses incurred by your S-Corporation (or, if you prefer, your Limited Partnership or your Limited Liability Company) will flow onto your personal bala
What leaders of corporations and organizations say about others can play a powerful role in the culture that their company adopts. In addition to actions, policies, and communications, companies reflect what their leaders say. This can be revealing.Take Donald Trump, for example.From all appearances, Trump seems to run a successful organization. The success of his companies, just as is the case with ANY company, has as much to do with the character of its leaders as its strategy. This character, referred to as its culture, is much more powerful than its s
Your Two Major Financial Statements
There are two major financial statements that every entrepreneur should know how to read and (ideally) prepare or have prepared in their financial software (we recommend QuickBooks):
The Income Statement
The Income Statement (also known as the P&L or Profit and Loss Statement) offers a dynamic picture of the ebb and flow of your finances. Briefly, income statement shows first: A. Your various sources of income Then subtracts from that, B. Your expenses To give you the net result: Net Profit or Loss Typically, it is the result shown on this statement that is the basis for your taxation by state and federal authorities at the end of the year. The net income or loss (revenue outgo) is carried over onto your second major financial statement: The Balance Sheet.
The Balance Sheet
Offers you a snapshot of cumulative results of your financial activities. It is made up of two columns:
On the left side you have your Assets
On the right are listed your Liabilities and Owners/Shareholders Equity (or ownership in the business). The two columns must be in balance, which is why this is called a Balance Sheet.
Assets=Liabilities + Equity
It's really quite logical how the Income Statement and Balance Sheet relate to one another.
If you have to use current or long-term assets to pay ongoing expenses during the current year, at the end of the year, the amount of your assets will be reduced by the amount of net loss. On the right hand side, your Equity has gone down too. If you borrowed, say $10,000 to pay current operating expenses, at year end, your assets remain the same, but your liabilities have increased by $10,000, lowering your net Equity or ownership in the company by that same $10,000.
It doesn't take a rocket scientist to figure out that if you continue on this path, you will quickly be in a very painful situation, because Liabilities carry their own cost. The cost of borrowing money is Interest, and if you are fortunate enough to borrow at only 10% interest (on unsecured debt) today, a year from now, you will have to pay $11,000 to pay off the original $10,000 debt. This reduces your equity still further--unless you have used the borrowed funds to create more assets that increase in value at the same rate as the interest on your debt or, better yet--at a higher rate.
More to the point for deciding which business entities to use is that you need to work out both your personal financial statements and those of your business(es). If you find, for example, that that you have significant salary or wage income in your personal financial statements that is causing you to pay out high taxes (as reflected in your balance sheet), and you expect that your business will generate some significant losses for the first several years, it would be advantageous to you to use a business entity that is a flow-through entity. Losses incurred by your S-Corporation (or, if you prefer, your Limited Partnership or your Limited Liability Company) will flow onto your personal bala
Being an entrepreneur includes many challenges. Opening a dollar store is no exception. One of the challenges is in being so close to your business that you lose sight of changes that are occurring in that business. Yet daily, weekly and monthly sales data can be early indicators of changes in business operations.If you are opening a dollar store be sure to allot time to examine sales data for your store. Of course formal monthly, quarterly and annual examinations should occur with your account as well. But don’t wait for meetings with your accountant. If you are o
The Balance Sheet
Offers you a snapshot of cumulative results of your financial activities. It is made up of two columns:
On the left side you have your Assets
On the right are listed your Liabilities and Owners/Shareholders Equity (or ownership in the business). The two columns must be in balance, which is why this is called a Balance Sheet.
Assets=Liabilities + Equity
It's really quite logical how the Income Statement and Balance Sheet relate to one another.
If you have to use current or long-term assets to pay ongoing expenses during the current year, at the end of the year, the amount of your assets will be reduced by the amount of net loss. On the right hand side, your Equity has gone down too. If you borrowed, say $10,000 to pay current operating expenses, at year end, your assets remain the same, but your liabilities have increased by $10,000, lowering your net Equity or ownership in the company by that same $10,000.
It doesn't take a rocket scientist to figure out that if you continue on this path, you will quickly be in a very painful situation, because Liabilities carry their own cost. The cost of borrowing money is Interest, and if you are fortunate enough to borrow at only 10% interest (on unsecured debt) today, a year from now, you will have to pay $11,000 to pay off the original $10,000 debt. This reduces your equity still further--unless you have used the borrowed funds to create more assets that increase in value at the same rate as the interest on your debt or, better yet--at a higher rate.
More to the point for deciding which business entities to use is that you need to work out both your personal financial statements and those of your business(es). If you find, for example, that that you have significant salary or wage income in your personal financial statements that is causing you to pay out high taxes (as reflected in your balance sheet), and you expect that your business will generate some significant losses for the first several years, it would be advantageous to you to use a business entity that is a flow-through entity. Losses incurred by your S-Corporation (or, if you prefer, your Limited Partnership or your Limited Liability Company) will flow onto your personal bala
So what's all the fuss about blogging for business?It's simple, really:Blogs drive traffic to your website. If you're the owner of a business -- large, small, mid-size, online or brick-and-motor only -- you need a blog.More traffic to your website means more business for you.More customers for you -- whether to your website or to your downtown storefront -- translates to more sales for you.And blogs do so very inexpensively. In fact, if you do the blogging yourself, your blog need not cost you a thing.year, at the end of the year, the amount of your assets will be reduced by the amount of net loss. On the right hand side, your Equity has gone down too. If you borrowed, say $10,000 to pay current operating expenses, at year end, your assets remain the same, but your liabilities have increased by $10,000, lowering your net Equity or ownership in the company by that same $10,000.
It doesn't take a rocket scientist to figure out that if you continue on this path, you will quickly be in a very painful situation, because Liabilities carry their own cost. The cost of borrowing money is Interest, and if you are fortunate enough to borrow at only 10% interest (on unsecured debt) today, a year from now, you will have to pay $11,000 to pay off the original $10,000 debt. This reduces your equity still further--unless you have used the borrowed funds to create more assets that increase in value at the same rate as the interest on your debt or, better yet--at a higher rate.
More to the point for deciding which business entities to use is that you need to work out both your personal financial statements and those of your business(es). If you find, for example, that that you have significant salary or wage income in your personal financial statements that is causing you to pay out high taxes (as reflected in your balance sheet), and you expect that your business will generate some significant losses for the first several years, it would be advantageous to you to use a business entity that is a flow-through entity. Losses incurred by your S-Corporation (or, if you prefer, your Limited Partnership or your Limited Liability Company) will flow onto your personal bala
Recently I was talking with Fred, a new manager, who said he couldn't win for losing. When he delegated and checked up, his employees would get annoyed, stubborn, and resistant, claiming he was micro-managing. If I don't check, he said, they don't do it. In either case, I'm not getting what I need, and what our clients need. Clients are complaining and my manager thinks I'm not producing.When we looked at a specific example, the problem started to get real clear.Upper management had asked for an upgrade for an existing service. They
More to the point for deciding which business entities to use is that you need to work out both your personal financial statements and those of your business(es). If you find, for example, that that you have significant salary or wage income in your personal financial statements that is causing you to pay out high taxes (as reflected in your balance sheet), and you expect that your business will generate some significant losses for the first several years, it would be advantageous to you to use a business entity that is a flow-through entity. Losses incurred by your S-Corporation (or, if you prefer, your Limited Partnership or your Limited Liability Company) will flow onto your personal balance sheet to offset the salary or wage income and thus reduce your tax liability.
Moreover, in general, if you want to draw up a roadmap to getting where you want to go, you need to know your point of departure. Thus, preparing and understanding your personal and business financial statements is an indispensable first step for your business planning.
©Copyright Azur Pacific Associates 2006
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