Managing money is extremely stressful for some of our clients. They may have gotten mixed messages about money growing up or had parents or a life partner who managed family finances. Many of our clients are self-made—they didn’t go to business school, and some don’t have a degree at all. It’s no wonder that taking control of business finances is a hot topic.

Navigating the financial landscape of entrepreneurship can be daunting, but it’s a critical component of business success. Understanding cash flow, balance sheets, profit and loss (P&L) statements, and building business credit are foundational skills every woman entrepreneur and executive should master. This guide will break down these concepts into simple, manageable insights, explaining each type of report you should review and how frequently, empowering you to take control today.

Understanding Cash Flow

Cash flow, the lifeblood of your business, refers to the net amount of cash being transferred into and out of a business. Simply put, you want more money coming in than going out for salaries, bills, and other overhead costs. Positive cash flow means your company is running smoothly, while negative cash flow could signal trouble ahead.

Tips for Managing Cash Flow:

  • Monitor your cash flow regularly with weekly reviews – ask your bookkeeper to set up automated reporting to save time.
  • Delay outflows as long as possible without risking late fees – work with vendors to set up credit or net terms.
  • Encourage quicker inflows by offering incentives for early payments from clients.

Demystifying the Balance Sheet

A balance sheet provides a snapshot of your financial condition at a specific moment, showing assets, liabilities, and your equity in the company. Review your Balance Sheet monthly to assess liquidity (readily available cash) and financial stability.

Key Components:

  • Assets: What your business owns.
  • Liabilities: What your business owes.
  • Equity: The owner’s share of the business.

Profit and Loss (P&L) Statement Essentials

It’s crucial to understand whether your business is profitable. The P&L or income statement shows your revenues, costs, and expenses over a period. It allows you to analyze your revenue streams to identify which are most profitable and scrutinize expenses to find areas where you can cut costs without sacrificing quality.

The frequency with which you review your P&L depends on your needs. If your business is mature and steady, bi-annual or annual reviews may be sufficient. If your business is growing, changing, becoming more complex, or recovering from challenges like the pandemic, monthly or quarterly reviews help you gain insight and stay on track with financial goals.

Building Business Credit

Establishing and maintaining good business credit can help you secure better terms with suppliers, lower interest rates on loans, and improve your ability to raise capital.

Strategies for Building Business Credit:

  • Open a business credit card and ensure timely payments.
  • Work with suppliers who report payments to credit bureaus.
  • Monitor your credit reports regularly to correct any inaccuracies.*

Essentials for Taking Control of Business Finances

We’ve established the financial reports you should review regularly, but there’s more to taking control of your business finances.

  • Budgeting: Creating and sticking to a budget is crucial for financial planning and preventing overspending.
  • Tax Planning: Understanding your tax obligations, staying current with estimated tax payments, and leveraging deductions will minimize liability.
  • Investment: Reinvesting profits back into your business can fuel growth (think new equipment and expanding your team), but it’s important to balance this with maintaining a healthy cash reserve. Investigate Money Market Accounts and other ways to invest and grow surplus cash.
  • Support: If you’re feeling uncertain about what you need to know, get help. A CPA or bookkeeper can help you clean up bookkeeping, walk you through what you need to know, put systems into place, and review reports with you for critical insights. For ongoing support, consider consulting on retainer with Always This Good to stay on track with meeting your business goals.

Conclusion

Mastering the financial aspects of entrepreneurship might seem overwhelming, but it’s essential for sustainable growth and success. Start with the basics outlined in this guide, and don’t hesitate to seek professional advice when needed. Remember, financial literacy is a powerful tool in your entrepreneurial journey, empowering you to make informed decisions that drive your business forward.

*Learn more about checking your business credit score here.