{"id":8961,"date":"2023-09-11T22:50:31","date_gmt":"2023-09-11T13:20:31","guid":{"rendered":"https:\/\/precisionadvantage.com.au\/?p=8961"},"modified":"2023-09-06T11:39:11","modified_gmt":"2023-09-06T02:09:11","slug":"10-concepts-every-small-business-owner-needs-to-understand","status":"publish","type":"post","link":"https:\/\/precisionadvantage.com.au\/10-concepts-every-small-business-owner-needs-to-understand\/","title":{"rendered":"10 concepts every small business owner needs to understand"},"content":{"rendered":"

Even if you have outsourced your financial functions, as a small business owner, it is crucial to have a solid understanding of key financial concepts to work with your advisor and \u2018speak their language\u201d. This article outlines several important concepts that every small business owner should be familiar with.<\/span><\/p>\n

    \n
  1. Basics of income and expenses<\/b>
    \n<\/b>As a small business owner, it\u2019s important for you to understand how you generate and spend money. This way, you can maintain fiscal responsibility while also promoting business growth.<\/span><\/li>\n
  2. Income statements (P&L) versus cash flow<\/b>
    \n<\/b>To make smart short-term financial decisions, business owners should always stay on top of the latest cash flow analyses and projections. Remember, a P&L doesn\u2019t tell you if you can pay your bills or how liquid your business is. Keep that in mind!<\/span><\/li>\n
  3. Operating cash flow<\/b>
    \n<\/b>Understanding a company\u2019s operating cash flow is vital for assessing its performance and cash runway.<\/span><\/li>\n
  4. Gross sales versus net profits<\/b>
    \n<\/b>As a small business owner, it\u2019s important to pay attention to both sales and expenses to ensure a healthy and well-managed business. Remember, gross sales don\u2019t equal net profits. It\u2019s crucial to understand every expense, know the industry averages, and have enough cash on hand to thrive long term.<\/span><\/li>\n
  5. Reading a balance sheet<\/b>
    \n<\/b>As an owner, it\u2019s important to understand the line items on a balance sheet. Taking a deep dive into these details can provide valuable insights into your financial well-being. Soon you will instinctively know if something doesn\u2019t look right.<\/span><\/li>\n
  6. Unit economics<\/b>
    \n<\/b>For small business owners, it\u2019s crucial to have a clear understanding of the expenses and revenues linked to a specific product or business unit. You need to be able to dive into the nitty-gritty of your finances, and that\u2019s where unit economics comes in. The basic idea is simple: you should know the ins and outs of your expenses and revenues for a particular product or business unit. By grasping your unit economics, you\u2019ll have a better grasp of your business as a whole, and it will also help you gain credibility with partners or investors.<\/span><\/li>\n
  7. Return on equity<\/b>
    \n<\/b>This concept helps us decide whether we should keep investing in the business or look into other investment options. You see, there are always opportunity costs to consider for every investment.<\/span><\/li>\n
  8. Cost of goods sold<\/b>
    \n<\/b>It\u2019s really important to have a clear understanding of the cost involved in producing your products or services. If you\u2019re not sure how much it actually costs to make your product or provide your services, it\u2019s hard to know how much you\u2019ll have left to cover your overhead expenses..<\/span><\/li>\n
  9. Accounts payable and accounts receivable<\/b>
    \n<\/b>Effectively managing cash flow through digital tools for accounts payable (AP) and accounts receivable (AR) is crucial. After all, cash is king for small businesses!<\/span><\/li>\n
  10. Working capital<\/b>
    \n<\/b>Monitoring working capital is important for ensuring the business has enough funds to operate smoothly. If you can\u2019t get enough working capital because of seasonality or other external factors, then you can get loans. A working capital ratio between 1.2 and 2 signifies a healthy business to lending companies. The working capital ratio shows<\/span>\u00a0the ratio of assets to liabilities, i.e. how many times a company can pay off its current liabilities with its current assets. The working capital ratio calculation is: Working Capital Ratio = Current Assets \/ Current Liabilities<\/span><\/li>\n<\/ol>\n

    To wrap things up\u2026<\/b><\/h2>\n

    Having a solid understanding of these key financial concepts enables you to make informed decisions, effectively manage your finances, and strategically drive the growth and long-term success of your businesses.<\/span>
    \n<\/span>With financial acumen, you can identify opportunities for expansion, mitigate risks, and build a sustainable foundation for your business ventures.<\/span><\/p>\n

    Don\u2019t navigate your finances alone \u2013 we\u2019re here to help.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

    Even if you have outsourced your financial functions, as a small business owner, it is crucial to have a solid understanding of key financial concepts to work with your advisor and \u2018speak their language\u201d. This article outlines several important concepts that every small business owner should be familiar with. Basics of income and expenses As … Continued<\/a><\/p>\n","protected":false},"author":2,"featured_media":8991,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"acf":[],"yoast_head":"\n10 concepts every small business owner needs to understand - Precision Advantage<\/title>\n<meta name=\"description\" content=\"Even if you have outsourced your financial functions, as a small business owner, it is crucial to have a solid understanding of key financial concepts to\" \/>\n<meta name=\"robots\" content=\"noindex, follow\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"10 concepts every small business owner needs to understand - Precision Advantage\" \/>\n<meta property=\"og:description\" content=\"Even if you have outsourced your financial functions, as a small business owner, it is crucial to have a solid understanding of key financial concepts to\" \/>\n<meta property=\"og:url\" content=\"https:\/\/precisionadvantage.com.au\/10-concepts-every-small-business-owner-needs-to-understand\/\" \/>\n<meta property=\"og:site_name\" content=\"Precision Advantage\" \/>\n<meta property=\"article:published_time\" content=\"2023-09-11T13:20:31+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-09-06T02:09:11+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/precisionadvantage.com.au\/app\/uploads\/7821576.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"800\" \/>\n\t<meta property=\"og:image:height\" content=\"1200\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Bizink\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Bizink\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"3 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/precisionadvantage.com.au\/10-concepts-every-small-business-owner-needs-to-understand\/\",\"url\":\"https:\/\/precisionadvantage.com.au\/10-concepts-every-small-business-owner-needs-to-understand\/\",\"name\":\"10 concepts every small business owner needs to understand - 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