Amongst small business owners, mastering the essential business finance concepts is a perennial issue. What is in fact relatively straight forward, is perceived to be very complicated and the domain of accounting experts only.
The instrument panel of business is its finances. Ever tried to drive a car without instruments? It’s easy to break the speed limit or run out of fuel. The consequences of not having instruments is such that most of us would not drive our cars without them. Yet many business owners blunder along without this critical knowledge.
So what are the most important components of an understanding of Business Finance concepts? Here is the list:
- Margins and mark-ups – what each terms means; how it fits into the financial puzzle and how discounting affects profits.
- Break-even. How this is determined and how to interpret the results such that your activity levels are in line with making profits
- The Profit and Loss report; its structure, what it means and how to read it
- Profit vs cash-flow and the working capital cycle
- The cash-gap and managing cash
- The Balance Sheet; its structure what it means and how to read it
- The financial operating cycle
These are the basic concepts that anyone in business should be across. This level of knowledge will demystify most of the basic jargon that frightens the ignorant, and provide a level of empowerment that will lead to greater confidence in dealing with business issues that have a financial underpinning.