Business Simplified

Many people these days have a perception that business owners are very busy, working long hours with little time to relax or spend time with their loved ones. They believe that businessmen live a highly stressed-out lifestyle which is not conducive to happiness.

This belief can be false if those same individuals look into the life of one particular businessman and understand what makes him happy.

Some people say that being rich is your goal in life, but I disagree. Being wealthy is a byproduct of living a good life and enjoying yourself. Having money is nice, it helps you enjoy things such as traveling, donating to charities, and giving gifts for special occasions, but none of this matters unless you feel happy.

We all need help at times. We’ll never know when we might need some inspiration, motivation, or guidance, so let us make sure our lives are full of things that make us smile. Let us learn how to love ourselves more and give ourselves more credit for accomplishing things.

Businesses exist to make money, of course, but they must also leave an impression on others to keep up interest and repeat business. Creating an environment where employees feel comfortable will go a lot towards ensuring this happens.

What are the different types of assets?

business simplified

A less glamorous, but just as important part of running a business is figuring out what type of asset you have. This includes things like money, equipment, inventory, etc.

The most common type of asset in any business is cash. Having enough money to meet your expenses for a given period of time is essential to keeping the business going.

Equipment is another key component of having a successful business. Even if you’re not buying or selling expensive items, investing in necessary tools can add depth to your product line or help you run the business more efficiently.

Inventory is one of the biggest costs entrepreneurs face. Make sure you don’t have too much, though! With rising commodity prices, it’s increasingly difficult to know how much products cost unless you have access to exact numbers.

A good rule of thumb is to be within 20% of your estimated budget for each of these categories every month. When you reach that mark, start looking to cut back somewhere else to make up the difference.

Simplifying our financial lives isn’t about giving up everything we own, it’s about realizing what doesn’t matter anymore.

What are the different types of liabilities?

business simplified

A liability is when someone else must pay you for something you did or failed to do. Most businesses have some kind of liability, but they are typically not significant enough to threaten their continued existence.

A few examples of common business liabilities include:

Employee theft (looting)

Violations of health and safety laws

Legal disputes with other parties

Tax debts

Most of these can be handled through various strategies and policies if it happens very frequently, otherwise you may need to consider whether there is anyone who can take over your job so that you can focus on more important things.

There are several ways to handle employee theft. You could give each employee an account at a bank where they can deposit money and earn cash back rewards, which would likely reduce any potential thefts.

What is the difference between debt and equity?

business simplified

Debt is when you owe money to someone else, typically your creditors or lenders. Your debts are what you have to pay back as interest in return for their permission to spend your money next.

In other words, you’ll need to earn more money or take home a lower salary so you can afford to repay these loans!

Equity is when you own something, like shares of a company or a house. When you invest in an asset, it goes up in value due to you, the investor, paying more than it was originally worth. You also get paid extra for owning it.

With equity, there’s still a balance to be repaid, but your investment will help you live comfortably now and in the future. It works in reverse too – if the assets drop in price then you lose, even though you didn’t make any payments!

The key word here is ‘own’. You don’t actually have to use this asset, you just have to hope that it keeps going up in value. Obviously, investing in expensive things may not work for some people.

Simplifying credit card debt doesn’t mean giving up all forms of credit however. Credit cards with 0% introductory offers are one way to tackle that. Another option is using credit wisely, only taking on what you can manage.

What is the key balance sheet balance point?

The other major element of business finance that most people get wrong is what we refer to as the balance sheet balance point. It’s an important metric to know, but few seem to be able to identify it with any degree of certainty.

When you understand the balance sheet balance point, you can make better financial decisions by incorporating this information into your decision making process.

The balance sheet balance point is simply referred to as the “profitability margin.” This term gets thrown around a lot, so let’s take a look at how it relates to the profit-making side of things.

Profitability Margin

A profitability ratio gives us some insight into whether or not a company is making enough money to cover its operating costs and keep up with growing demands for its products and services.

We can calculate this using the following formula:

Operating Profit/Sales = Operating Efficiency

Let me give you an example. Suppose Starbucks makes $1 million in sales and spends $500,000 to operate its stores each month. Its monthly operating cost is also $500,000. Therefore, its operating efficiency is $100%!

In other words, if a store was run like a Starbucks, then it would be just as efficient as one of their own facilities.

Why is it important to keep your business balance sheet updated?

business simplified

The first reason why this is essential to do every month is because of an interesting concept in finance called the "leverage rule." This rule says that you can't use debt (long term loans) to make up for poor cash flow or lack of capital.

It follows then, that by using long-term credit cards to make up for low income, you are creating more risk for yourself and your company. Because if the person running the card stops paying their bills, all of these things come crashing down!

Not only will you have large debts, but creditors will go after any assets you may have - including cars, houses, and savings.

This could be very damaging to your personal life as well as your career since most employers look at credit history when deciding whether to hire someone. If people find out you're struggling to pay off expensive credit cards, they might not want to work for you.

What are the key financial statements?

business simplified

The two main types of financial statements that most business use to evaluate their performance are the income statement and the balance sheet.

The income statement is also referred to as the profit or sales chart, it contains information about revenue, cost of goods sold (COGS), gross margin, and net profit/profit margin.

It’s important to remember that while these numbers may seem straightforward, they actually relate back to your company and its success or failure.

Your net profit/net profit margin can tell you whether your company is doing well or not because it compares what your company made with what it spent to make that money.

If those numbers are higher than before, then your company is making more money per unit than it did earlier! This means that you are producing more products or offering better services than you were before, which is great for your company.

However, if those numbers are lower than before, this might indicate that your company is spending too much money to produce its products and services. It could be due to poor productivity, wasteful expenses, or issues like limited resources.

Either way, it isn’t a good situation to be in unless you plan on changing them soon! If you notice that many of these factors coming up again and again, it might be time to look into replacing certain parts of your business model.

What is a cash flow statement?

business simplified

A cash flow statement is also known as an income statement with a time component. It includes information such as net revenue, cost of goods sold, gross profit, operating expenses, other income (such as advertising revenues), interest paid, taxes paid, and net income or profit.

Some companies include additional components in their financial statements such as inventory valuations, working capital values, and debt obligations. All of these numbers are used to determine whether or not the company has enough money coming in to cover its monthly expenditures. More expensive equipment can push up the costs for business, so investing in better tools helps keep profits high.

In addition to having enough money to meet your current commitments, you want to make sure that the company will have enough money to fulfill future promises it makes to customers and employees. If it does not, people may find somewhere else to spend their hard-earned money. This could hurt your business severely!

Cash flow is a very important part of any business because it determines if the company can stay open overnight. Many businesses close down due to lack of funds; therefore, learning how to interpret a cash flow statement is crucial.

What is a profit and loss statement?

business simplified

A simple way to run your business is by making smart decisions. One of these decisions-making processes is creating efficient systems in and outside of the workplace. Systems that keep you organized and time effective are important for continuous success.

In fact, having adequate systems is one of the most essential things you can do as an entrepreneur. Without them, you could be wasting valuable time and energy trying to organize everything yourself.

As we know, being able to identify and eliminate waste is a key factor in successful entrepreneurship. So why not use those resources at our disposal to help us manage our businesses more efficiently?

There are many ways to develop work-life balance strategies but none have made a big splash like the income and expense (or P&L) statements. These statements track how much money you make and how much you spend each month so that you can compare year-to-year performance levels.

You may also notice patterns in spending categories such as monthly cell phone bills, daily coffee purchases, or average lunch expenses.

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