A Quick Guide to Calculating Assets and Expenses for your Startup
When you’re launching a new business, it’s important to stay on top of the financial end of things. Here’s a quick guide on calculating assets and expenses for your startup.
You’ve finally turned your dream into reality and gotten your business off the ground. You’re focused on your product, your customers, and the great service you’re providing. You don’t have time to worry about your finances right now. The numbers will sort themselves out, right?
Unfortunately, it’s not that easy. Ignoring your finances for too long can result in disaster. Whether you like it or not, it’s important to account for your startup’s assets and expenses. You can use these three financial documents to help ensure the sustainability of your business:
1. Income Statement
The income statement is sometimes referred to as the profit-and-loss statement. It tells you how much money you’re making (your profit) and how much money you’re spending (your loss).
There are a few important calculations to take away from this document. Analyzing each one can help you narrow down areas of concern for your business. Here they are:
This number is found by taking your total income, then subtracting your direct costs. Direct costs include all the expenses directly related to making your product or providing your service.
Sometimes called “earnings before interest and taxes” or EBIT, this number is found by taking your gross profit and subtracting overhead expenses like marketing and insurance.
Take all remaining expenses, like tax and interest, away from your operating income and you’re left with your startup’s net income.
2. Balance Sheet
The balance sheet is broken down into two main sections. One tells you how much you own while the other tells you how much you owe:
This side includes both your short-term assets (things like cash and inventory) as well as long-term assets (land, vehicles, etc.).
Liabilities and shareholders’ equity
Your liabilities can be considered either short-term (such as accounts payable or credit card debt) or long-term (things like term loans). Shareholder’s equity includes money from investors or reinvested profits.
Note that the two sides of the balance sheet will always equal one another.
3. Cash Flow Projections
It’s always good to plan ahead.
You can create cash flow projections to predict when the money will be pouring in and when money will be tight. These predictions can be used to influence your spending decisions and prepare for any rough times on the horizon.
How Can I Get These Documents?
If you’re a do-it-yourself sort of business owner, you can find all sorts of accounting software out there to give you the tools you need to track your startup’s assets and expenses and put these documents together.
If you need a little more assistance, E&E is here for you. Feel free to contact us for help with your financial documents or for any of your startup’s other accounting needs.
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