Managing your finances is one of the most important tasks that comes with running a company. However, many entrepreneurs start a business without fully understanding the financial ramifications of their project. You may offer a superior product or service, but without the right financial guidance, other companies could outpace you. Our financial experts at SD Associates, P.C. are here to share some of the most important financial concepts every business owner should know and how we can help set you up for success.

Income vs. Expenses

It may seem simple, but the foundational concept of income vs. expenses can be complicated, especially for new business owners. It’s essential to understand how your business makes money and how much of your profits are going towards your expenses. As your business grows, it can become more difficult to allocate resources towards expansion while still maintaining your profitability. Our financial experts provide professional business advisory services to keep you on top of your finances. 

Cash Flow

‘Cash flow’ refers to the cash value that goes in and out of a business. Note that cash flow does not necessarily refer to just cash – it includes any cash equivalents that move in and out. Inflow is any cash that your business receives, while outflow is any cash that your business expends. Ideally, you want a positive cash flow – this leads to long-term free cash flow, or FCF. This term refers to any cash you gain from business operations after you remove the cash spent on capital expenditures. 

Profit Margin

Your profit margin is exactly what it sounds like – it is how you measure the profitability of your business. A business’s profit margin is typically written as a percentage and shows how much of a business’s actual revenue it gets to keep after deducting all of its expenses. In order to calculate your company’s profit margin, take your gross profit, divide it by your total revenue, and then multiply that number by 100 to get your percentage. 

The Fiscal Year

Not every business uses the calendar year to calculate their profits. A fiscal year, also known as an accounting year, is a 12 month period that is named by the year in which it ends – not the year it begins. For example, the government of the United States’ fiscal year begins on October 1 and ends on September 30 of the next year. It is important to know whether your business will use a fiscal year or the calendar year to calculate your taxes, compile financial statements, and more.

Contact SD Associates, P.C. Today

These are just a few of the financial concepts every business owner should be familiar with. If you’re spending more time working on your finances than on expanding your business, we can help. Our financial experts offer a wide range of business consulting and business taxation services, and we can guide you towards better financial health. Contact SD Associates, P.C. today at 215-517-5600 to learn more about our financial services.