Understanding Financial Statements and Accounting: Crash Course Entrepreneurship #15

CrashCourse

27 Nov 201912:43

EducationalLearning

32 Likes 10 Comments

TLDRThe video discusses financial tools for entrepreneurs, emphasizing three key reports for measuring success: the income statement to track revenue and expenses, the balance sheet for assets, liabilities, and equity, and the cash flow statement to follow money in and out. It explains points of sale, business bank accounts, accounting software options, and the importance of filing taxes properly. The goal is to take the intimidation factor out of bookkeeping by using organized systems, knowing terminology, regularly reviewing reports, and finding knowledgeable partners.

Takeaways

😊 Every entrepreneur needs to think about how to take in money and track expenses
💳 Popular point of sale systems include Shopify, Square, and PayPal
🏦 Have a separate business bank account to keep personal and business finances organized
📊 Track revenue, costs, and profitability with income statements, balance sheets, and cash flow statements
🤑 The income statement shows revenue, expenses, and net income over a period of time
💰 The balance sheet is a financial snapshot showing assets, liabilities, and equity
💸 The cash flow statement tracks money flowing in and out of the business
📈 Use accounting ratios to evaluate financial performance and efficiency
📒 Accounting software like Quickbooks, Freshbooks, and Xero can generate reports and invoices
🗓 Don't forget to file business taxes!

Q & A

What are some popular electronic point of sale systems?
-Some of the most popular electronic point of sale systems are Shopify, Square, and PayPal. Shopify and Square help set up e-commerce sites and have hardware to use in physical stores. PayPal is an online checkout system that makes purchases easy for customers.
What are the three essential financial reports entrepreneurs should know?
-The three essential financial reports are: 1) Income statement - shows revenue, expenses, and net income over a period of time; 2) Balance sheet - snapshot of assets, liabilities, and equity at a point in time; 3) Cash flow statement - shows cash inflows and outflows over a period of time.
What are current and fixed assets?
-Current assets are anything that can be converted into cash within one year, like cash or inventory. Fixed assets are purchased for long-term use and can't be quickly converted into cash, like land or buildings.
What are the three sections of a cash flow statement?
-A cash flow statement has three sections: 1) Operations cash flow - cash from running the business; 2) Investment cash flow - cash from buying/selling assets; 3) Financial cash flow - cash from loans and dividends.
What popular accounting software is recommended for subscription businesses?
-Freshbooks is a popular accounting software often recommended for subscription-based businesses.
What metrics can be used to evaluate business profitability?
-Some metrics to evaluate profitability include gross margin, net margin, return on assets, return on equity, earnings per share, etc. Hundreds of accounting ratios exist, so research ones relevant to your business.
What taxes may a small business need to file?
-Small businesses likely need to file federal, state, and possibly municipal taxes. Details can be found on IRS.gov, your Secretary of State's website, and your city's website.
What is the purpose of separate personal and business bank accounts?
-Separate accounts help keep personal and business finances organized. This makes tracking expenses, calculating profit, and filing taxes much easier.
What options exist if an entrepreneur wants accounting help?
-If needing help, entrepreneurs can bring on a bookkeeper, accountant, or use a virtual accounting service like Bench or SLC Bookkeeping.
Even with accounting help, what should entrepreneurs do?
-Entrepreneurs should still regularly review essential financial reports and understand what they say. Though getting advice, the entrepreneur makes the final decisions about their business.

Outlines

00:00

😊 Introducing Spreadsheets and Bookkeeping

The paragraph introduces the topic of spreadsheets and accounting. It explains that spreadsheets can be intimidating but are important for tracking expenses, estimating revenue, and measuring profitability. It emphasizes the need for organized systems and vocabulary to become "bookkeeping pros."

05:02

🏧 Tracking Money Coming In and Going Out

This paragraph discusses setting up systems to track money flows in a business. It covers options like Shopify, Square, and PayPal for processing transactions and sales. It also recommends getting a separate business bank account and using accounting software like QuickBooks to organize finances.

10:06

📈 Essential Financial Reports

The paragraph introduces three essential financial reports for measuring business success - the income statement, balance sheet, and cash flow statement. It explains the purpose and components of each report and provides an example analyzing the financial health of an event planning business.

😀 Keeping Your Books Straight

This paragraph gives tips for managing bookkeeping activities. It suggests using accounting software or services and working with a bookkeeper or accountant. It emphasizes the need for business owners to regularly review financial reports and make final decisions themselves.

💰 Understanding Accounting Metrics

The paragraph notes there are many accounting ratios to analyze profitability and efficiency. It recommends researching relevant metrics for your business and working with experts who can help interpret financial reports.

📝 Don't Forget Taxes!

Finally, the paragraph reminds viewers not to forget about filing business taxes. It provides resources for finding tax requirements and forms in the US at the federal, state, and city levels.

Mindmap

Keywords

💡point of sale

The point of sale refers to where customers pay money to purchase a product or service from a business. It can be a physical location like a cash register or credit card machine, or a digital checkout page. Having an easy point of sale system helps provide a smooth buying experience for customers. Examples from the script include cash registers, credit card machines, and the checkout page on a website.

💡revenue

Revenue refers to the total amount of money a business brings in, usually over a specific time period. Tracking revenue is important for measuring a business's financial health using income statements. An example from the script is tracking total revenue on an income statement over the course of a year.

💡expenses

Expenses are costs a business incurs through its operations and administration. Tracking all expenses provides an accurate picture of net income on an income statement. The script mentions including every expense like production costs and taxes when creating an income statement.

💡assets

Assets include anything of value owned by a business that could be converted into cash. Assets like property, inventory, and investments are listed on a balance sheet. The script divides assets into current assets, which can convert to cash within a year, and fixed assets for long-term use.

💡liabilities

Liabilities refer to financial debts and obligations a business owes, which are also listed on a balance sheet. These include loans, mortgages, unpaid revenue, and upcoming expenses. Liabilities have current liabilities due within a year and long-term liabilities with later due dates.

💡equity

A business's equity refers to the value of the business to its owners or shareholders. It's calculated by subtracting liabilities from assets to show what would remain if all debts were paid. Though many early-stage businesses don't have shareholders yet, equity indicates what the entrepreneur actually owns.

💡cash flow

A cash flow statement tracks the inflows and outflows of cash over a specific time. It has 3 sections: operations cash flow from revenue & expenses, investment cash flow from property sales & purchases, and financial cash flow from loans & dividends.

💡accounting software

Accounting software efficiently organizes financial data and generates reports like income statements and balance sheets. Popular options covered in the script include Quickbooks for overall accounting, Freshbooks for subscriptions, and Xero for integration with other systems like Square.

💡bookkeeper

A bookkeeper is an accounting role that handles recording financial transactions and producing reports. As the script advises, bringing on a bookkeeper or accountant allows the entrepreneur to focus on big-picture strategy while leveraging financial expertise.

💡taxes

Filing required tax forms is an essential part of financial management for any business. As the script emphasizes, documenting revenue, expenses, assets and more also prepares businesses for submitting accurate tax paperwork.

Highlights

The place where customers hand over money in exchange for a product or service is called the point of sale.

Having a seamless point of sale system is a big part of making the buying process as painless as possible so customers will feel good about doing business with us.

If your business isn't set up for immediate transactions, you can send customers invoices to get paid.

We want to make the buying process as painless as possible so customers will feel good about doing business with us.

This move of having a separate business bank account is all about organization.

When tax season rolls around, are you really going to be able to remember the difference between personal and business expenses?

If calculating profit becomes a guess-and-check walk through of every purchase we’ve made this year, the simple “revenue minus expenses” equation is suddenly much more complicated.

An income statement shows how much money we’ve spent and made during some period of time, usually a month or a year.

A balance sheet is a snapshot of our business's financial health at any point in time.

Equity is assets minus liabilities, which we rearrange to make the business equation: Assets = Equity + Liabilities.

A cash flow statement tells us how much money has moved in and out of our business in a specific time period.

Do your research to make sure whatever accounting software you pick works well with the systems you already have.

You should still review your income statements, balance sheets, and cash flow statements regularly and know what they say.

Finding a key partner who knows their accounting stuff can really help in understanding the hundreds of different metrics we can use to see how efficient and profitable our company is.

Bookkeeping can be fun, or at the very least understandable. Set up systems to manage your revenue and invest in software or people to keep your business organized and profitable.

Transcripts

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