Learn What Goes Into your Small Business Finances
Small Business Finance BasicsAs you begin to learn the basics of what goes into your small business finances, there are three critical tools you should understand. 1. Income Statements, or a profit and loss (P&L) statement, use a basic formula to calculate your company’s profit. This formula is revenue – expenses = profit. However, this tool does not give you enough information to accurately assess your business’ profit, as it works on an accrual basis. Your income statement can be healthy, showing revenue coming in, but you are not able to collect it. There are several key performance indicators (KPIs) to monitor as you use your income statement. These metrics give you information on all of your transactions and intel on your company’s growth.
- The number of sales/subscribers /active users/$ Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR)
- FTEs, or Full-Time Equivalents (employees)
- Revenue per FTE
- Expenses per FTE