Financial Fundamentals – What Every Small Business Owner Should Know!

Business owners rarely go into business to deal with the financial aspects of running a business. It’s easy to understand why! You are passionate about the products or services you provide and want to focus your time there. The financial aspect usually falls to the bottom of the “desired responsibilities” list. It is critical to the long-term success of your business that you understand some of the Financial Fundamentals of being a business owner though. You don’t have to be an accountant or financial analyst, but it is important that you have some key skills in your business toolkit to measure the financial aspects of your business. It’s okay to outsource this activity so that someone else can do the work you don’t like to do, but make sure you understand the output of the financial information. You’ll need it to help you make informed decisions about your business. Remember! Accounting is not just about taxes. There’s so much more to know about the numbers, so you’ll know how your business is doing from the management perspective.

There are a variety of key aspects of your financial picture that you need to be aware of and they can be outlined based upon the three critical financial statements: Profit/Loss, Cash Flow, and Balance Sheet.

I meet with entrepreneurs every day that are unsure of their profitability. They “think” they are making money because they have money in their checking account. This is NOT how you should be running your business. Having money in your checking account doesn’t mean you are profitable. It could mean you haven’t paid all the bills so you have a little cash. Cash and profit are two different concepts. If you aren’t profitable, you won’t have longevity in your business.

So what is the difference between profit and cash? Profits are determined through an equation of Revenues – Cost of Goods Sold = Gross Profit – Overhead Expenses = Net Profit. This equation is the makeup of your Profit/Loss Statement. Revenues are dollars from generating sales within your business. Cost of Goods Sold reflects the direct costs for labor and materials incurred in your business. Overhead Expenses are all those other costs that you incur so that your business can function (i.e. Rent, Taxes, Insurance, Marketing, Accounting, etc.)

You can have activities that affect cash but are not considered revenues or expenses. For example, when you borrow money from a lender, it is not considered income. It is classified as an increase in your liabilities (i.e. debt). When you repay that loan, it will not be considered an expense. It is a reduction in your liability. Any interest you might incur on that loan would be classified as interest expense, but the principal portion is not. Similar concept applies for owner investments and withdrawals.

Often times the two concepts of cash and profit are not clearly defined for small business owners; therefore, you don’t have a good handle on your finances and how to interpret any outcomes from financial reporting. You can show a profit and have a negative cash flow if your loan payments, owner withdrawals, and other non-expense activities are taking more cash out of your business than you have profit. Same goes for the opposite flow, you can have a lot of cash coming into the business through an increase in personal or lender-financed activities vs. revenues. The most basic of cash flow statement information can be outlined as Beginning Cash Balance + Cash Inflows – Cash Outflows = Ending Cash Balance. It’s important for you to understand the concept of your Profit/Loss Statement and your Cash Flow Statement. They provide two different views of our business.

The third financial statement you should be preparing monthly is the Balance Sheet. The Balance Sheet provides information on your Assets, Liabilities and Equity. Assets are what you own that is of value. Examples include Bank Accounts, Accounts Receivable, Inventory, Property, Plant, and Equipment. Liabilities represent your obligations to others. Examples of liabilities include Accounts Payable, Notes Payable to Lenders, Loans from Shareholders, etc. The Equity balance reflects the value of your ownership in our business. When you take the value of the assets less the value of your liabilities, the remainder is your equity.

It doesn’t matter the size of your business, profitability and ongoing financial stability is something you should be monitoring on a regular monthly basis. Some will say that they are too small for creating financial statements. That is your way of not holding yourself accountable to managing your business wisely. It’ll always be someone else’s fault when your business fails…or at least that is what you’ll say. Though it won’t be the truth, it’ll be your fault for not managing your business wisely. You can choose to succeed, or to choose to fail. It is always a choice, not a default. So make the choice to be a financially informed business owner. Your business will thank you through increased profitability and longevity!

The Building Blocks of Financial Translation

The ever-increasing process of globalisation continues to put companies under pressure to communicate financial information in numerous languages. Whether it’s annual and shareholders reports or corporate contracts, all documents require translation of the utmost accuracy. The consequences of errors can be dire; issues with investors, clients or suppliers may arise, or strict financial regulations that differ from country to country could potentially be violated leading to costly legal troubles.

Finance is a complex industry that people spend years studying heard to break into, so it’s no surprise that financial translation is a highly specialised field. As well as there obviously being mind-boggling financial jargon in need of careful linguistic handling, translators must also know their way in and around cash flow statements, balance sheets, and audited account reports among other documents. They have to use their understanding of the culture surrounding the target language to ensure translations are localised to suit the financial sector in their native country, with words and phrases that could even be considered offensive in some cultures being avoided.

Looking away from the linguistic side of things and focusing more on the financial translation service itself, time and confidentiality are two factors that always play a major role in satisfying the needs of financial translation clients. Translation companies providing these services all have efficient project managements systems to allow them to keep up with the fast-paced world of finance, delivering assignments in quick time to corporate clients. The fastest turnaround times on offer usually include rushed turnaround times and/or delivery within 24 hours. Confidentiality is equally important because many documents can’t be published until approved by the Financial Services Authority, meaning a leak of information beforehand could prove disastrous and have long-lasting effects. State-of-the-art IT security tools often play a part in guaranteeing maximum security, and confidentiality agreements are put to translators to sign by the service provider in question.

No two clients are ever the same, making it likely that they will usually return to the same financial service to have the aforementioned aspects delivered on a consistent basis. Some companies specialise solely in financial translation, although it’s more likely that a business will hire a company or agency that operates in all areas of translation. Those in the corporate world can rest assured that there are a great many service providers out there who understand that having the finest details of financial documents understood in any language is not a luxury, but a necessity.

How to Check Your Financial Accounts For Identity Theft

Most people have a wide variety of financial accounts that they use each and every week. They write checks, use credit cards, ATMs and online banking. Every transaction involves some degree of identity theft risk. The store clerk might spy on your visa information while she processes a purchase. A hacker might monitor your online activity using a Trojan. Or someone might create counterfeit checks that they pass around a town that you have never even been to.

Monitor Financial Information It is important to monitor your financial information on at least a monthly basis. You must report any problems to your financial institution within 60 days. Here are some quick tips about how to monitor your financial information efficiently.

1. First of all, you need to make sure that all of your financial statements have arrived in the mail. It is quite common for identity thieves to steal your bank or credit card statement from the mailbox. For maximum protection, you should look into using a private locked mailbox and use that address to receive your bills.

2. You should mark down on the calendar when your bill is set to arrive. For example, my bills arrive in and around the 15th of each month. If your bill does not arrive, it is important that you contact the financial institution because the statement might have been stolen.

3. If there is a charge that you think is suspicious on one of your financial statements it is important that you report this charge immediately. Usually you have 60 days of coverage. The longer that you wait the more difficult it is to prove your innocence.

4. After you have read your bank or credit card statements you should shred all information. You can purchase a shredder for home office use for less than $100 from Staples.

5. Financial records should be kept in a safe place in the house. Some people keep their financial records in a small household safe. I know of one example where an individual had their tax return on their desk and the cleaning lady saw the Social Security number and passed it along to an identity thief.