Mobe Matt Lloyd :The business world can be very confusing, especially the financial terms that are always thrown around. It is important that as an entrepreneur you understand these financial concepts as they will influence your long term financial strategies, including negotiating and setting up basic cost structures for your business.
The following terms are some of the basic essential concepts you should understand in order to keep your business finances on track.
Mobe Matt Lloyd :Working Capital refers to the funds your company has that can be freely spent. Working capital is calculated by subtracting your current liabilities from your current assets. Current assets are all assets expected to be sold within a business’ current fiscal year, while current liabilities are monies due to be paid to your creditors within twelve months. Managing your working capital will ensure that your business has sufficient funds to meet short term expenses.
Mobe Matt Lloyd :Gross margin is your company’s total sales revenue minus the cost of goods sold, divided by total sales revenue percentage. It details the percentage total of sales revenue your company gets to keep after subtracting your cost of production. The higher the percentage, the more your company gets to keep on each sale. Understanding gross margin is very important as it impacts your breakeven and the profit you make beyond break even.
Mobe Matt Lloyd :Bottom line is your company’s income after you have deducted all expenses from returns. It differs from gross margin in that its takes into account all expenses, not just the cost of goods sold. Bottom line includes both your company’s net earnings and net income. You need to understand the bottom line in relation to your financial actions, that is, how your financial decisions will increase or decrease your company’s net earnings. Bottom line will also help you make decision on how much to reinvest and how much to put in your savings accounts.