Numbers and accounts can strike fear into the heart of anyone but when running a business, it's imperative to know the state of your finances. Cash flow can make or break a business, so it's essential that you keep on top of yours. This guide talks you through everything you'll need to know about keeping on top of your money.
When running a business you should immediately know what the financial position of your company is. Don't wait until the end of the month to find out how much money you've made, got in the bank or what you owe or are owed, what you've sold and what you haven't - you should know this on a daily, weekly and monthly basis in order to keep on to of your business.
Knowing the difference between turnover and profit is essential to running a business. Turnover is the value of sales before costs have been deducted. Profit is the money you make from sales after all costs have been deducted. For example if you sold five items at £10 each with a profit of £2 on each, you'd have a total turnover of £50, but a profit of only £10. Remember that it doesn't matter if you're selling millions of units unless you're making a profit on the sales. Profit is essential to keeping a business alive.
Gross profit is the total amount of money your business makes before any deductions have been made. Net profit is what you come out with after deductions such as rent, wages, tax, NI contributions and any other outgoings have been taken off. Don't just look at your gross profit as an indication of how well your business is doing - net can be a better indicator of business health.
There's no shame in admitting your finding it hard keeping on top of your finances. That's what accountants are for, and employing the services of one will probably take added pressure off. What you should never do is bury your head in the sand or lie about your finances. Make sure you have all your paperwork, bank statements and receipts to hand when talking to an accountant. Lastly don't be afraid to ask questions if there's anything you don't understand.
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