Understanding Business Finance

You have to tell your money where to goor you'll wonderwhere it went.I’m about the get on a bit of a soapbox.  I apologize in advance for that but you’ll thank me later.  I’ve seen so many situations where good people put themselves into a bad situation because they don’t bother to understand their business finances.  As soon as I saw the Daily Post’s prompt today was Understanding, I immediate knew what I wanted to write about.

You cannot properly manage your business resources if you don’t have good business finance processes in place.  Even if you hire someone to do your accounting and finance for you, you have to understand what is happening.  You simply can’t be successful if you don’t understand things like your profit margins, cash flow and funding.  You may as well quit now (harsh, I know) if you don’t know your financials well enough to truly understand how your business is doing.

At a minimum, you should understand:

  • Revenue and Expenses – Every single transaction should be recorded. How much is coming in?  How much is going out? Where is it is all coming from and going to??
  • Cash Expenditures – You have to record the cash your business spends so you’ll have an accurate number of expenses each year.
  • Inventory – Maintain records of all inventory.  How are you going to know what your trends are to forecast if you don’t know what you sold?  This also helps you preventing stealing and misplacing merchandise (yes, this happens).  Track dates purchased, prices, when you sold things and sale prices.
  • Accounts Payable and Receivable – You need to have clear records of who owes you money and who you need to pay (and when you pay them).

There are a lot of free resources to help you learn all of this and more.  Here is a list from Open Culture of 150 free online courses.  Full disclosure – I didn’t go through all 150 but it looks like there are a lot of fantastic resources listed there.


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