accounts

Business accounts – the basics

Do you fall into one of the following categories when it comes to accounts and financial projections?

  • Don’t understand them (but maybe pretend sometimes that you do!)
  • Find you’re scared of them or just see a jumble of numbers.
  • Can’t see the need for them or simply rely on other people to understand them for you.

If you can say yes to any one of the above then read on!

The Basics

So, to begin with, why not write down your ‘Business Objectives’ i.e. what you are trying to achieve and where you are trying to get to on your ‘Business Journey’. You then need to think about what resources you are going to need to achieve those objectives i.e. staff, premises, equipment and vehicles etc.

The next step is to transfer all these ‘hopes and aspirations’ into £’s and pence, to see how well it will work in practice. The three separate parts to your financial projections are:

  1. The Profit and Loss Account (Your sales less trading costs which give you a profit or a loss)
  2. The Cashflow Forecast (A future image of what your bank account should look like)
  3. The Balance Sheet (A list of your business assets and liabilities)

accounts

In layman’s terms, and to help differentiate between the three,

  • the 1st shows what you hope to do (and whether it is worthwhile doing it!)
  • the 2nd shows how much money you will need to do it (or turning this on its head it shows you ‘if you can afford to do it!)
  • the 3rd shows what your business will look like at a particular time in the future. This should be of interest to you and will be needed by your bank if you want to borrow money.

The profit and loss account (P&L) and the cashflow forecast (CFF) are normally prepared on a corresponding monthly basis for two or three separate years and the related balance sheets (which can be described as ‘snapshots’ in time) show the assets and the liabilities on the last day of each future year.

Now, having prepared your route map for your business journey, don’t forget to check your progress from time to time i.e. regularly compare your accounts to your projections and take correcting action to get back on track, if necessary!

For more advice and support, contact Franchise Finance now.

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Sandy Purewal

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