Financial concepts that you should know as a business owner
If you already decided to start, it is necessary that as a business owner you know some financial concepts. Maybe you have collaborators or partners that help you in everything related to finance and indicators of your SME. However, it is very important that you also know them in order to take corrective actions if necessary.
In Konfío we share 5 concepts that you should be clear about if you are a business owner and will help you make better decisions.
Capital is the money that a company has, either of assets (real estate, machinery, equipment, stocks, among others), money obtained by shareholders and the income it generates (sales). Capital can increase by increasing sales of your business or by looking for investors who bet on your project. It is important that you invest your capital in initiatives that make your business grow and consequently your money.
Credit is a financial operation in which a creditor grants a loan for a certain amount of money to a debtor. Remember that when you get a credit, in addition to paying the amount requested, you must pay some concepts such as interest, insurance and associated costs.
Statement of income
The income statement or profit and loss statement is a financial report that shows in detail the income of your business, the expenses that are generated when producing your product or service, and the profit or loss that your SME has generated in a period determined. As a business owner, it is vital that you know this information in order to make strategic decisions. You will have an overview of what you are selling, how you manage your expenses and if you are really generating profits.
Cash flow is a financial report that shows all the cash inflows and outflows in a given period for a company. Unlike a statement of results, in the cash flow you can see how much money comes in and goes out of your business. For example, the payments of a purchase are recorded but not the depreciation of an asset. This is a key indicator to know the liquidity of your business.
It is the ability of a company to meet its financial obligations. That is to say, the money or current assets with which you have to pay the concepts generated for the production of your product or service, and to liquidate the short-term debts that you have in the business.
These are just some concepts that will help you as a business owner to make decisions and define the strategic direction your business should follow. If you want to know more terms, enter the Konfío Financial Dictionary, where we will solve all your doubts.