Contrary to what many might think, running a small business successfully is no less challenging. Read on to understand certain basic business concepts that would help the owners run their venture successfully and without a glitch.

Understanding the Fundamentals of Income & Expenses

Every business owner needs to possess an understanding of the fundamentals of income and expenses. An owner who does not have an idea of how his business earns money and where he should be spending it is a disadvantaged lot. It is imperative to strike a balance between financial responsibility and business expansion for any business to grow and thrive.

Understanding a Balance Sheet

Though in most instances the entrepreneurs do possess a basic understanding of a balance sheet, it is not enough. It will not help them in spotting line items that would help them in exploring more. Owners should also back their instinct if they find something to be off-putting in the balance sheet. Though outsourcing is a great option yet it should not be forgotten that no one understands the business like its owner. He can trust the professionals to cover the job but must have an understanding of which details to dig deep.   

Unit Economics

Small-business owners must lay great emphasis on basic finances. This is where unit economics steps in. The idea is to understand expenses and revenues associated with a specific product or business unit. Entrepreneurs who understand their unit economics will also better understand their enterprise and will be respected by their associates and investors.

Operating Cash Flow

It can be termed as the lifeline of any business. It tells you about the performance of any enterprise. Normally a company must aim towards either a positive OCF that will fund initiatives or a negative OCF that will cover high growth and align to an adequate cash runway.  

Gross Sales Vs Net Profits

Entrepreneurs must understand that gross sales can never influence net profit. Many times small business owners lay such emphasis on sales that the cost side of their business is overshadowed. Having a fair knowledge of each line item of expense, industry averages for each line item, and having adequate cash reserve for all occasions is most important for the efficient functioning of any business.    

Income Statements Vis-A-Vis Cash Flow Analyses

Entrepreneurs must understand that the profit and loss statement is not a pointer towards the health of any company. Despite a company earning millions, it is important to review regular, current and projected cash flow analyses to make well-informed financial decisions.

Tax Liability

The owner of a successful enterprise needs to be aware of his tax liability. He must have an idea of how much he owes in taxes so that he can work towards reducing the number while still working on his business expansion.

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