financial intelligence for entrepreneurs

Financial Intelligence for Entrepreneurs: A Practical Guide

Elena Hudgens
By Elena Hudgens 18 Min Read

If you have a business, so it’s important to understand the fundamentals of financial intelligence for entrepreneurs. But it’s not enough to simply know a balance sheet from a P&L statement. 

You need to know the difference between an asset and a liability.

I’ve been a business owner for a long time, and I know how easy it is to get lost in the weeds of finance. That’s why I wrote this practical guide for entrepreneurs.

In it, you’ll find a no-nonsense, no-fluff financial intelligence course that will teach you what you need to know.

Section 1: The Basics of Business

The key to success in any business is having a solid business plan. As a result, it’ll help you focus your energy and clarify your goals so that you can create an actionable roadmap for how you should run, grow, and structure your company. Learn More.

Meanwhile, your business plan is the blueprint for your company’s future. From what you do and who your target customers are to where you stand in your market (how many customers you can reach and who you’re competing with for their business), this document will help. 

Your marketing plan is one of the most crucial aspects of your business. Therefore, It will determine if you’ll get new customers, and it’ll make or break your operations plan.

For many, a mission statement or vision for what you want the company to become is used as a guiding principle for your business strategy – kind of like a vision board for your personal life.

Your business plan should cover revenue, expense, and profit. Your profit is the money left over after you deduct your expenses from your revenue. You’ll be surprised by how great you feel!

If you want to make more money, you will want to improve your small business’s gross margins. The gross margin is the total sales revenue after accounting for all of the costs necessary to produce your goods or services. 

Nothing is more important to a small business than improving its gross margins. On the other hand, it’s the amount of money you make after all the costs necessary to produce your goods or services are accounted for. Learn More.

Not sure how much you should be paying for a product? There are calculators online to help you figure it out! Calculate your COGS, revenue, and profit margin to ensure that you’re getting the best deal. With this tool, you’ll be able to understand the true health of your business finances and make informed decisions about how to grow your company with investments and leverage.

When you’re writing your business plan, start with a short, sweet ‘executive summary’ that will help an investor or interested parties understand all the most critical elements of your plan.

Section 2: Personal Finance vs. Business Finance

Starting a business is not easy, so here’s brief writing about financial intelligence for entrepreneurs. 

After your business plan, you’ll need to think about how to fund your company. However, personal and business finance differ in one important way: for personal financial strategies, leverage is an investment strategy.

Leverage is a word that is commonly misunderstood and means different things to different people. If you’re investing in your future, leverage can be a great way to do it.

Understanding debt and equity is key to understanding how leverage works. The debt to equity ratio is a good signal for investors.

This is a tool that can measure the debt your company has to its assets. So, this ratio can help you find the perfect balance between long-term and short-term loans. The smaller the ratio, the safer and more stable your company is seen. This will allow you to access much-needed capital from loan officers. 

That’s right! Businesses use leverage to invest in their companies without having to provide all of the capital. So this can be used as a way to decrease their risk, which is often much more significant than the risk for a business.

Make your business grow! Use business loans to your advantage. It’s another great way to use financial intelligence for entrepreneurs. It’s not a bad thing, as long as you don’t take out more loans than you can payback.

Keeping Business and Personal Finances Separate

The best way to separate your business and personal finances is with a business checking account and credit card, and a small business loan.

Avoid the stress of having to divide personal finances with your businesses. Register your business and obtain a federal tax identification number for financial records.

You don’t want to take any chances with your finances. Therefore, we’ll show you how to keep track of your books and file your taxes so that you can feel confident and find financing for anything.

Accounting and Business Taxes

It’s important to have a plan for your accounting and business taxes. Whether you need help calculating your payroll or tracking your expenses, but we’re here for you.

It’s important to monitor your business growth and prepare for tax season. To clarify, with accurate tracking of your business’s expenses, you can create financial statements, organize your filings, and feel confident that you’re doing the right thing for your company.

Why not take a little time to go over the numbers and see if you’re paying yourself enough? With accounting, you can figure out if you want to manage your books or hire an accountant. Just know that with the cash method, you recognize. Learn More.

The accrual method is a bookkeeping system that’s more realistic than the cash basis because it recognizes revenues and expenses when transactions happen. It requires tracking receivables and payables, but it’s worth it for the accuracy.

You don’t have to manage your accounting yourself. There are lots of great tools, like Shoeboxed, Quickbooks, or Xero that can help you keep track of your business finances.

Running your own business is a rewarding and fulfilling career. By joining the Entrepreneur’s Organization, you can learn from other entrepreneurs, grow your network and make connections through collaborations.

With a clear plan in place, knowing how to use leverage to finance your operations, and a disciplined approach to business accounting and taxes, the rewards can not only be emotional but also financial.

Section 3: Understanding the Balance Sheet

What is the Balance Sheet?

A balance sheet is a form of financial statement that displays the company’s assets and how those assets are financed, either through debt or equity. Most importantly the balance sheet can be referred to as a statement of net worth or a statement of financial position. The balance sheet is based on the fundamental equation: Assets = Liabilities + Equity.

The left side of the balance sheet is all about what the company has, or its assets. The right side is all about what the company owes, or its liabilities.

Sample Balance Sheet
Source: corporatefinanceinstitute.com

An asset is a resource with a financial value that is owned by someone or some organization. For example, an office building may be an asset to the company which owns it. Liability is also a resource, but it does not have any financial value and so the owner must compensate for this by borrowing money. Learn More.

Subsection 3.1: Assets

Current Assets

Cash and Equivalents

You may think that cash is just one of many assets on the balance sheet, but it’s the most liquid and relies on short-term maturities of either three months or assets that can be quickly liquidated, and it’s the most important part of financial intelligence for entrepreneurs.

 If you’re interested in seeing what cash equivalents a company includes, check the footnotes to their balance sheet.

Accounts Receivable

Through this account, you can see how much money is still unpaid on your sales. In addition when the accounts receivable are collected, your cash increases by the same amount.

Inventory

In the inventory account, companies keep track of what they have on hand for raw materials, work-in-progress goods, and finished goods. When a company reports sales of goods, they usually include the cost of those goods in their income statement under the cost of goods sold.

Non-Current Assets

Plant, Property, and Equipment (PP&E)

When it comes to PP&E, you can bet the company has got the bases covered. Whether it’s your buildings or your equipment, you can be sure that they will last and be of use for a long time.

Sample of PP&E
Source: wallstreetmojo.com

Intangible Assets

Sometimes, the fancy things are intangible. Like, for example, patents and licenses. These are intangible because they’re not physical things that you can put your hands on. On the other hand, goodwill and brand are also intangible because they’re related to somebody’s opinion of something.

Subsection 3.2: Liabilities

Current Liabilities

Accounts Payable

Having AP can be a pain, but it’s nothing that an account payable solution can’t fix. Reduce your AP and increase your cash with an account payable solution that will do all the heavy lifting for you.

Current Debt/Notes Payable

The long-term notes payable section includes any debts due within a year, as well as any debts due after a company’s operating cycle. Notes payable may also come in a short-term version, which includes debts that have a maturity of more than one year.

Current Portion of Long-Term Debt

You may or may not lump this account with the Current Debt account. While they seem similar, the current portion of long-term debt is specifically due within this year of a piece of debt that has a maturity of more than one year. For example, if a company takes on a 5-year loan from a bank, so, this account will include the portion of that loan. Learn More.

Sample of Long-Term Debt
Source: wallstreetmojo.com

Non-Current Liabilities

Bonds Payable

Your credit score doesn’t have to be perfect. You just need to have enough money for your down payment, your monthly mortgage payments, and the amortized amount of any bonds that the company has issued.

Sample of Bonds Payable
Source: wallstreetmojo.com

Long-Term Debt

The long-term debt account is where you can find all of the company’s outstanding debt, including the interest expense and principal repayment for every period. It’s derived from the debt schedule, which outlines all of our outstanding debt, the interest expense, and the principal repayment for every period.

Sample of Long-Term Debt
Source: wallstreetmojo.com

Subsection 3.3: Equity

Shareholders’ Equity

Share Capital

This is the value of funds that shareholders have invested in the company. When a company is first formed, shareholders will typically put in cash also a vital part of Financial Intelligence for Entrepreneurs. For example, an investor starts a company and seeds it with $10M. Cash (an asset) rises by $10M, and Share Capital (an equity account) rises by $10M, balancing out the balance sheet.

Retained Earnings

Your company’s retained earnings are the result of all the revenue it brings in from its various business activities. These earnings are then reinvested to generate additional income or to pay out dividends. Learn More.

Subsection 3.4: Calculating Cash Flow & Profitability

Cash flow is just as important as profits, and since you’re investing in your business for the long term, you need to take care of both aspects. You can start by taking a look at the cash flow forecast.

Source: tutor2u

How Is Cash Flow Defined?

Cash flow is an important part of any business. It’s what lets you buy inventory, pay your employees, and make daily operations possible.

Positive cash flow means that a company can meet its current financial obligations. Negative cash flow means that a company is less able to meet its current financial obligations. Learn More.

What Does Profit Mean?

When it comes to your business, there’s no such thing as too much profit. The more you make, the more you keep and the less you pay in taxes!

There are three major types of profit that analysts analyze: gross, operating, and net. All three levels of profitability can be found on the income statement. Knowing each type of profit can give you more insight into the company’s performance.

What’s the most important for a business?

When you’re deciding which is more important to the business, it depends on the circumstances at hand. Also pursuing a financial business must need financial intelligence for entrepreneurs.

If you’re looking to invest in a business, make sure to consider how much money it will bring in every month. Remember, the company’s money is tied up in hard assets or accounts receivable, which means there’s no cash for payroll.

When debt gets paid back or the business starts to see an influx of revenue, it will start to see positive cash flow. In this example, cash flow is more important because it keeps the business running while still maintaining a profit. 

Alternately, a business may see an influx in revenue and cash flow, but there is a substantial amount of debt so it does not make a profit.

Running a business can be tough, especially when it comes to dealing with profit vs cash flow. But don’t worry- we can help! By focusing on profit and not cash flow, you’ll come to realize the importance of making a profit and not just what’s in your bank account.

Section 4: Conclusion

Entrepreneurs may think that financial planning is only for the big shots. But as an entrepreneur, you need to take care of your company’s finances as well. Proper financial planning sets the standard and means that you’re ready for success! With Financial Intelligence for Entrepreneurs, you’ll be able to confidently talk numbers with anyone. 

You’ll also learn how to use financial data to make smarter decisions for your business. Financial intelligence for entrepreneurs helps managers make better, more informed decisions by equipping them with the knowledge of different ratio analyses.

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Posted by Elena Hudgens
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Elena Hudgens is an entrepreneur with 10+ years of experience. She started her journey by building her own e-commerce website on Shopify and turned her $1000 savings to millions in just 2 years. Soon she started different ventures in which she failed and succeeded. And now, she's on a mission to help other entrepreneurs with her life and business lessons.
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