Accounting Basics for Entrepreneurs.

Treet your Staffs

It may seem to be obvious, but in owning a business, it is critical to understand how the business enterprise makes an income. An ongoing company requires a good business design and a good income model. The entrepreneurs offer products or services and earn a degree of margin on each product or service sold. The actual amount of devices sold is the sales price through the reporting period. The business enterprise subtracts the fixed expenses for a month or year, gives them the operating income before taxes.

It’s important never to confuse revenue with cash flow. Revenue equals sales value minus expenses. A company manager shouldn’t presume that sales revenues equal cash inflow and purchase costs equivalent cash outflows. When you sell something, money or another advantage will increase. The accounts receivable will increase when you sell on credit. Some expenses will reduce the dollar value of some assets instead of cash. For instance, the cost of goods sold will make a difference in the inventory ledger and depreciation expenditure will reduce the accounting value of assets. Also, some expenses will go to accounts payable or a rise in the accrued payments(payable liability).

Understand that some budgeting is preferable to nothing. Budgeting provides significant advantages, like understanding the income dynamics and the financial framework of the business enterprise. Also, it helps for planning changes in the upcoming reporting period. Budgeting forces a continuing business manager to give attention to the factors that need to be improved to increase profit. A well-designed profit and loss statement supply the essential platform for budgeting income. It’s always smart to look forward to the year ahead. If little or nothing else, at least plug the real figures in your income report for sales volume, sales prices, product costs and other charges and observe how your projected earnings reach for the year ahead.

Do we need a Budget?

You may think you know where all your money goes, and you don’t need a budget to reduce your expenses. I was in that trap for a very long time. I thought I am not a spender; buy only the things I need. Yes that was right I didn’t spend that much, or I didn’t spend anything that I should spend. So I thought I will keep a track of my income and outgo. I set up my account in Mint.com, so I just watch where all my income ends up. January 2016 onwards I am watching.

After waiting one month, I see that I am not spending what I should spend. Some areas I were spending was not supposed to pay. 

 

If you can get control of the expenses, that you should not spend, but spend because of lack of the data, you can enjoy financial success.

 

Yesterday I was listening to Dan Sullivan and Joe Polish’s Podcast 10x talk(http://10xtalk.com/75/) – Elephants don’t bite. He explains why little things create the big effect? Dan explains that a small nail can change your commute difficult if it penetrates on your car tyre. The little things do count. Cutting what you spend on unwanted items like tools or the materials you brought for the weekend project may be sitting in your garage, may change your fortune.

 

Set long term and short term goals for your life. There are no bad goals or plans here. If it’s important to you, then those are the relevant period. If on the long run if goal A or Plan B failed don’t worry, as Brian Tracy said, there are 27 alphabets in English use another plan.

What is your experience? Did you use a budget?