If you’re starting a business, bookkeeping is one of the most important things you can do to keep your finances in check. While it may seem daunting at first, it’s actually not that difficult once you get the hang of it. The basic book keeping guide will help you get started and the sooner you grasp the fundamentals, the more control you’ll have over crucial business decisions, which will help you achieve long-term success.
Basic Bookkeeping Guide for New Business Owners
Revenue And Cash Inflows
Revenue refers to the money your company brings in through sales and services, while cash inflows are all the money that comes into your business, regardless of how it was earnt. It’s important to track both of these metrics so you can keep tabs on your company’s financial health and make smart decisions about where to invest your resources.
Net income is the amount of money that’s left over after subtracting all expenses from your company’s revenue.
Expenditure And Cash Outflows
Expenditures are the money your company spends in order to generate revenue, while cash outflows are all the money that leaves your business, regardless of the reason. The bottom line is a net loss, which is the amount of money that’s left over after subtracting all revenue from all expenses. A negative net loss means you’re losing money, while a positive net loss means your company is making money.
Profit and Loss Statement
A Profit and Loss Statement, also known as an Income Statement, is a document that shows how much money your business has earned and spent over a specific period of time usually for the month, quarter, or financial year. It can be a useful tool for better understanding your company’s financial health, making informed business decisions, and to track your progress over time.
A Cashflow Statement is a document that shows how much money your business has brought in and paid out over a specific period of time.
Types of Cashflow Statements
A direct cashflow statement shows the actual movement of cash in and out of your business. This is beneficial in determining your company’s financial health as a whole.
An indirect cashflow statement adjusts for non-cash items, such as depreciation, amortisation, and inventory. This might be useful when you want to exclude these expenses from the calculation because they are not directly associated with your company’s core business.
A balance sheet is a document that shows your company’s assets, liabilities, and equity at a specific point in time.
Other Bookkeeping fundamentals
Assets are anything that has value and can be used to generate revenue. Common examples of assets include cash, inventory, accounts receivable, buildings, and equipment.
Liabilities are a financial obligation of your company that needs to be paid in the future. Common examples of liabilities include accounts payable, loans, and mortgages.
Working Capital is the amount of cash your company has available to cover its short-term expenses. It’s calculated by subtracting your company’s current liabilities from its current assets. A positive working capital means your company has more cash than it needs to cover its short-term obligations, while a negative working capital means you’re running low on cash.
Funding is the act of providing cash or assets to a company in exchange for equity. This can be done through investment, loans, or other means.
It is crucial to remember that acquiring a firm grasp of your company’s financial circumstances takes time. Your company will have every opportunity to thrive and succeed if you work with competent bookkeepers and accountants, follow the basic bookkeeping guide and follow strict business reporting management and monitoring.
If you need assistance in understanding your company’s financial matters, here at Lucent Advisory we understand the needs of modern business, and we know what it takes to be successful in it. We consider both your critical success factors – your numbers and your people. Our solutions are designed to maximise your business performance, improve your processes and deliver information you can trust.