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Finance: Understanding an Income Statement

Organize Your Income to Gain a Profit

An income statement is the breakdown of your income and expenses.

Understand your sales, all the income and the expenses going out.

Most companies will recognize the revenue at the time of the sale of the products or services when the order is taken, or when the product or service is delivered. If a company has a hard time collecting their receivables then this revenue can not be realized until the money is deposited in the bank.

The same with expenses, depreciation and amortization. If the industry standard is depreciating an asset over 10 years but if it is depreciated over 30 years then the company will look more profitable.

Always know there is a lot of accounting discretion and must look at how aggressive or conservative you choose to present the company. Your accountant can help with the best strategy.

In general, expenses should be a percentage of revenue. Always look for trends. Revenue growth should always outpace expense growth.

As a rule of thumb, administrative expenses could be 20% of all revenue however each industry could have different standards which need to be looked at.

For Business statistics and financial ratios or or have your accountant help with the analysis of industry standards compared to other companies.

The bottom line is always the profit margin. Revenue minus expenses, including all the costs, of goods, labor and overhead expenses will equal your profit.

If your business is not profitable then changes need to be made to become profitable. Understanding where all the income is coming from will be invaluable in having and keeping a successful and profitable business.

Julie Brander - Business Mentor, SCORE New Haven
Julie has been a SCORE volunteer since 1997. She has 20 years of experience in business, starting a manufacturing, wholesale and retail jewelry company. After selling her business, she dedicated herself to helping other entrepreneurs start and expand their business. | @juliebrander | More from Julie


Finances: Are You Ready for Retirement?
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Learn What You Need To Know For Your Future

Are you ready for retirement? I’m not asking if you’re ready to sell your business and start making clay sculptures in Sedona or want to retire right this moment. I’m talking about whether you’re financially on the right track to be ready to retire when you need—and want—to do so.

Whether you’re 22 or 62, retirement readiness is a question women business owners need to consider. Here’s a shocking figure: On average, women’s retirement accounts are only two-thirds the size of men’s, according to a MassMutual survey reported by The Wall Street Journal. Making matters worse, women actually need more retirement money than men because they typically live longer, according to the Employee Benefit Research Institute.

Entrepreneurs in general are known for failing to adequately plan for their retirement. Many assume that “the business is my 401(k)” and that they will sell the business at some point and retire comfortably. Others plow every extra dollar back into the business, never considering their own needs. Add in the special concerns of women, as mentioned above, and it’s clear that smart retirement planning is an especially acute need for women entrepreneurs.

So start taking a hard look at your future finances. There are many options open for small business owners to sock away retirement funds, including IRAs, SEPs and even 401(k) accounts that can be opened by companies with only a few employees.

The Wall Street Journal article points out another key issue: Many financial planners are less than helpful to women clients because they patronize them, don’t take into account their longer lifespan or assume that their husbands’ retirement plans will handle most of the burden. You can’t assume anything when it comes to retirement planning, so find an advisor you’re comfortable with and who treats you with respect. Ask colleagues and professionals you work with for their recommendations, and check references.

It’s a cliché but it’s too often true that women shy away from understanding financial matters. As a business owner, you’ve had to learn lots about managing your company’s money, whether you were comfortable with finance or not. Now’s the time to do the same when it comes to your own money. It’s your future, after all.

Rieva Lesonsky - CEO, GrowBiz Media
Rieva is CEO of GrowBiz Media, a content and consulting company specializing in covering small businesses and entrepreneurship. She was formerly Editorial Director of Entrepreneur Magazine and has written several books about small business and entrepreneurship. | @rieva | More from Rieva


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