(Going for friendly an relatable in this read)
As a business owner, you know you need to look at your financial statements to understand the health of your business and how to plan for growth. But if you’ve ever felt confused trying to understand financial terms, you’re not alone. Here are 13 basic terms you’ll need to find your way around your financial statements.
Let’s start with revenue and expenses.
Revenue is what a business earns when it sells a product or service. When this restaurant’s customers pay by cash or card, or are sent an invoice for catering completed, that’s revenue, even if cash isn’t received right away.
An expense is when resources are used to generate revenue. Paying a supplier, employees, the rent and utilities are all common expenses. But again, this may not mean that cash is paid out. When the restaurant pays a vendor in cash, credit, or check, it’s an expense.
In managing your business, it’s important to recognize the difference between two kinds of expenses: Costs of Goods Sold, or Cost of Sales, and Operating Expenses
