Do you feel lost when your accountant talks about your financial statements?
There's a lot of basic accounting terms that every entrepreneur should know. In this video, I walk you through some of the most important ones.
Getting Started with Basic Accounting Terms
Here are a few key concepts that I feel are the most important for entrepreneurs:
Revenue or Sales
When you sale your product or service, the customer pays you. The money that you get from the transaction is considered your revenue.
Cost of Good Sold
These are the costs that you incur to make your product or service. They are usually direct labor and material. Depending on what you do, you may decide to add things like shipping and freight, commissions, etc.
This is the amount of money left once you subtract your cost of goods sold from your revenue. You then use your gross profit to pay for your overhead or operating expenses.
Gross Margin or Contribution Margin
This is a financial metric, and one that I feel is vital to your success. It's a percentage of your gross margin to your revenue. Watch the video to learn how to calculate this bad boy.
Overhead or Operating Expenses
These expenses exist even if you don't sell anything. They include things like utility bills, marketing costs and your outsourced accounting team. Wink, wink.
Net Income or Net Profit
When all costs are paid for, this is what's left. Often called the bottom line, it represents how you did.
Also a financial metric, this figure shows the percent of your net income to revenue.
Leave a comment in the blog post below if you have questions. I would be happy to answer them and help you master your company's finances.
Don't forget to have an amazing and profitable day.
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