The word in business is profit. The word is easy to understand. The company will be considered positive if they generate profit. On the same floor for small businesses, but not the profits are not necessarily healthy cash flow, or even success.
The definition of accounting profit is revenue (including sales on credit), net of expenses. Supervision of the most important aspects of profitability ", leading to numerous problems for companies with accounting owners.The problem is that the goods purchased in cash,are in balance, and to artificially inflate profits, for the same amount that the property was purchased for l '.
Charged credit sales are recorded in the newspapers and sales), corresponding to a debt (debtor, increased sales of credit. Value-added tax or general sales taxes paid on these accounts, as has been transformed.
One of the biggest failures in small businesses is the lack of credit control. Many entrepreneurs do not have the ability to recover outstanding debts. Where value added tax orGST is loaded, they are paid, regardless of whether the bill payer is being paid or not. Businesses also pay taxes on profits.
The owners of the companies (on the advice of their accountants) are profit-driven and not the cash flow. This leads to some interpretations of their finances. If the assets), liabilities (solvency, current assets exceed current liabilities exceed) (liquidity, I'm happy. Business owner the amount available on your bank account or credit card business frameworkas cash available! There is no money available, but the debt!
Solvency and liquidity should be measured by the amount of cash available (bank and cash on hand), more than liabilities. All other assets should be excluded. The reason is that the assets could be sold well below their market value if the company be liquidated. Money is the only good that can be used without any cost or loss on conversion.
And the financial statements? The financial statements are not required for small businesses, but until now an important tool to analyze the cash flow of the company. Many tax authorities will accept only the income and expenditure account. But the statement of cash flow has its flaws. Loans are advanced play as "cash flow from financing activities", which causes the illusion that the balance "healthy bank" means that the company is healthy. In a context of high rates of interest on the loan can be risky, and this aspect should be considered in the report. A> Note on the financial statements, is not enough.
Many accountants do not agree with the above. But my firm belief that a sound business in cash, small businesses more. Financial statements should be used only for tax and legal issues.
A business cash flow would be as follows:
* Collecting outstanding debts as soon as possible (the most difficult and problematic, I agree)
* Significant benefits from cash depositsClients before the beginning of a project
* Bank of money immediately, how much money is lost or very fast output
* Creditors stable as long as possible
* Starting to invest 5 to 10% of cash received in a given month, in another savings bank
* These bank accounts are also known as the reserve can be called:
a) A fund to build (for future expansion)
b) A tax provision, and, finally, an emergency fund (all emergencies) can occur. Reservations may be supplemented byadditional sales, the value of credit card payments that have already been paid. (Would not hurt, since you used for monthly payments with credit card)
* In addition to spending money on expenses, from wages, funds for the accounts "reserve should be repealed"
* The benefits of the reserve account will have two times, 1) A buffer between the revenue and expenditure (in a position to exert pressure on the overhead / spend less), and 2) The operation is further reserves of capital that thecould lead to source from somewhere else, if arose.The the need for a reserve to grow quickly if they remain intact, which is for twelve months. This exercise requires discipline, so that it works.
Focus will be on liquidity and savings to ensure a prompt (almost magical), the growth of money! The company will also be less dependent on loans, credit and capital from abroad.
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