2 Simple Corporate Finance Terms
70-290 There are hundreds if not thousands of business terms relating to finance out there, so if you are not used to it then it can get to be quite confusing and very easy to get lost or caught up. If you can grasp some simple terms though, you will be able to understand the implications of them on your business, and exactly what your advisors mean when they calculate some figures for you. There are 2 simple terms that every business should consider and know what they mean, so they can make sure that they are running well.
70-291 The first term that will be looked at is probably one of the most under used terms in the modern day business dictionary: "Break Even". The main reason this word or term is so unused in the modern business world is due to people simply being in business to make (the next term on the list) "Profit" and losing all sight of break even. This is one of the factors contributing to why so many small independent businesses are closing down; they are losing sight of the break even point, which is when the business is bringing in enough money to be able to cover all of the costs of running it, but does not really make a profit at the same time. If more businesses were set up to break even for the first few months and then go onto make a profit, they would have much better grounds to establish themselves and be able to be slightly more laid back and not too money driven before they really understand their market. Understanding how to break even is important, as if you are not managing to do this at the end of each month, then you need to review where your money is going and what you should be doing instead.
70-292 The next term, which follows on, is "Profit". This is when the business goes past the Break Even point and is starting to bring in enough income, that there is something left over once all costs have been covered. Profits can either be re-invested back into the company or taken out and split into dividend for share holders, or split between owners. There is a simple equation of Net profit ÷ Revenue in order to produce the Profit Margins, this will show by how much profit over revenue the business is making (for profit margin multiply the answer given by 100 in order to get the answer as a percentage). This can give you your simple guidelines to make sure that finances are all afloat in your business and that you are not in danger of sinking into a hole of debt.
70-291 The first term that will be looked at is probably one of the most under used terms in the modern day business dictionary: "Break Even". The main reason this word or term is so unused in the modern business world is due to people simply being in business to make (the next term on the list) "Profit" and losing all sight of break even. This is one of the factors contributing to why so many small independent businesses are closing down; they are losing sight of the break even point, which is when the business is bringing in enough money to be able to cover all of the costs of running it, but does not really make a profit at the same time. If more businesses were set up to break even for the first few months and then go onto make a profit, they would have much better grounds to establish themselves and be able to be slightly more laid back and not too money driven before they really understand their market. Understanding how to break even is important, as if you are not managing to do this at the end of each month, then you need to review where your money is going and what you should be doing instead.
70-292 The next term, which follows on, is "Profit". This is when the business goes past the Break Even point and is starting to bring in enough income, that there is something left over once all costs have been covered. Profits can either be re-invested back into the company or taken out and split into dividend for share holders, or split between owners. There is a simple equation of Net profit ÷ Revenue in order to produce the Profit Margins, this will show by how much profit over revenue the business is making (for profit margin multiply the answer given by 100 in order to get the answer as a percentage). This can give you your simple guidelines to make sure that finances are all afloat in your business and that you are not in danger of sinking into a hole of debt.
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