How to Better Understand Your Business Finances

Your top financial reports (Balance Sheet, Income Statement and Statement of Cash Flow) tell you the story of your company. The information they relay includes things like how profitable your business is as a whole, which of your product lines are most profitable, what expenses you need to cut and how much money you need to invest in growing the business.

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It’s important to keep a handle on your finances, but it’s equally important to make sure you’re interpreting those numbers correctly. To that end, it’s crucial to set up a bookkeeping system – whether it’s a paper record book or purpose-built accounting software – and stick with it consistently. This will ensure you’re able to categorise every transaction accurately, and that those categories match up with the ways other businesses in your space categorise their expenditures. For advice on Bookkeepers Hereford, go to

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The first category you need to get a handle on is revenue, which is how much your business brings in over a specific period of time, like one month. This doesn’t include any money you spend on goods or services that aren’t directly related to what you sell, so if you buy materials for making your products but then use them in producing service offerings, that’s an expense that needs to be deducted from your revenue total.

The other major category you need to understand is expenses, which are any money your business pays out for day-to-day operations. This includes fixed expenses, which are costs you reliably expect to pay and that don’t vary much in amount, like rent, business insurance and internet service, as well as variable expenses, which are more ongoing but fluctuate in amount, such as marketing expenses and credit card processing fees.