Starting a small business is difficult, regardless of your prior experience in the industry. As you come to familiarize yourself with all the different duties you need to fill in order to run a successful company, you may start to wonder if all of it can be done by one person alone. Having to learn about new business strategies, marketing tools, software programs, security needs, and more is enough to make starting franchisers feel overwhelmed. You’ve got a business to run – there’s no time to learn everything about everything! So Indevia Accounting is here to help you just jump in with the top accounting terms franchise owners need to know.
Top Accounting Terms Franchise Owners Need to Know
A quick look back at the basics can help you establish a stronger foothold in your company so you can much more easily navigate its day-to-day needs. Today, we’ll focus on some important terminology surrounding accounting and financing that can offer more clarity when looking for the best bookkeeping solutions for your business. Don’t forget that automated accounting services are a great tool for minimizing your busywork as a boss while helping you better understand your company’s most prominent needs. Let’s look at the top accounting terms franchise owners need to know right now!
One of the easier terms to understand, an income sheet is exactly what it sounds like: a document detailing your net profit over a specific period of time set by you. For example, you can have an income sheet for the week, month, quarter, or even the whole year. This is a good way to measure your progress and understand the financial health of your company as a whole.
Net and Gross Profit
If an income sheet measured your net profit, what is your net profit? You will usually see your net profit compared next to your gross profit, so it’s important to understand both. Your gross profit is the total amount of money you’ve made when selling a product (minus the cost of production) before subtracting additional fees. Therefore, your net profit is calculated after subtracting necessary costs such as bills, rent, operating costs, and salary. It is critical to understand the difference between gross and net profit as mistaking these two could cost your whole company.
Another very important term to understand is cash flow. This is a report that paints a picture of all the money coming into – and going out of – your company. This is used to make accurate estimates of how much money you can expect to see in and out of your accounts over a given period of time. Most franchisees choose to create monthly and quarterly cash flow statements to understand the health of their franchise at all times (and be able to respond accordingly).
A balance sheet is similar to an income sheet in that it records a portion of your company’s financials. Rather than just the income, however, a balance sheet typically measures multiple things. It is usually separated into three parts which include liabilities, assets, and equity. This can mean anything from assets and property to loans, credits, and debts. As a business owner, you can accurately depict the value of what you own using an up-to-date balance sheet.
Do you ever wonder how much difference it would make in your profit if you could make just one more sale? That is what marginal costs measure. This is determined when you divide the total cost of production by the number of products you want to produce. Then you’ll know how much you will make each time you sell one of your units. This isn’t just a numbers game, though; increasing production won’t necessarily run you a higher profit.
Get the Best Accounting Solution for Your Franchise
If you are starting a franchise for the first time, you might be feeling like you’ve bitten off more than you can chew on your own. But before you give up, get in touch with our accounting experts to see what automated bookkeeping services can do for you. From payroll management to automatic cash flow statements on a periodic basis, Indevia’s solutions can be tailored to suit your exact needs. Contact us today to see how our specialty franchisee accounting services can help you expand your bottom line.