Financing Basics
When developing your business plan you will need accurate cash flow projections and financial statements.
Find out how to create your basic management tools and how to use them to be sure your company makes a profit and you have enough money on hand to meet your needs.
The “Books” or Daily Journal
A daily record of debits and credits in specific and expense and revenue categories. This is the basis of your cash flow and financial statements.
- Have your accountant set them up.
- Purchase bookkeeping software to make entries easy.
- Start by doing it yourself.
- Hire a bookkeeper when it starts taking up too much time.
Cash Flow Statements
The difference between cash in from sales and cash out for inventory, wages, utilities and debt repayment. This allows you to pay bills on time and know about shortfalls in advance so that you can arrange an operating line of credit.
Income Statements
A total of revenues and expenses, which are then subtracted to show a profit or loss for the period. This tells you whether you are making money or not.
- Use bookkeeping software. Your accountant can help you get set up.
- Break down revenues and expenses into product/service categories.
- Draw insights and conclusions from statements with the help of your banker and accountant.
Balance Sheet
Total of business assets and liabilities, with the difference between the two showing the company’s net worth, also known as shareholders’ equity. This shows how you are doing in the long run.
- Use software to prepare automatically.
- A large cash component shows when a company can self-finance new opportunities.
- A large inventory component indicates overbuying or a sales slowdown.
- A strong balance sheet shows the company can be used for collateral against debt.
- Useful for when you want to sell or pass the company along to heirs.
Examples of financial statements
For more information, talk to your accountant or an RBC small business advisor.
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