Starting a Business: Understanding the Financials

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While passion for your start-up is essential in the beginning, you need to ensure you have a firm handle on how you’re going to manage your financials.

While passion for your start-up is essential in the beginning, you need to ensure you have a firm handle on how you’re going to manage your financials to offer your business the best chance of longevity. Suhail Hashmi, one of our business advisers here at First Enterprise – Enterprise Loans, shares his expertise on two of the most important financial statements entrepreneurs need to familiarise themselves with.

If you’ve read my colleagues’ blogs, you’ll already have a relatively firm understanding of what it takes to set up a business and then boost your start-up. From finding a gap in the market and writing a business plan to overcoming challenges and adversity, many ingredients go into making a new business a success. One of the most crucial of these is mastering your finances.

It’s likely you’ll have heard the phrases “cash is king” and “profit is vanity and cash is sanity”. However, I want you to forget how much profit you can make for a minute because it’s a simple fact that if you do not manage your cash flows and working capital requirements, you will inevitably go out of business.

While I could write page after page detailing the intricacies of finances, today I’m going to focus on two key basic financial statements and what they consist of.

The cash-flow statement

Also known as the statement of cash-flows, a cash-flow statement shows how much cash is generated and used during a given time period. They are normally prepared as a way to plan out and forecast the next 12 months of trading to ascertain how much working capital or funding your business might require.

A cash-flow statement will include all of the inflows and outflows of your company, giving you a net cash inflow and outflow for each particular month. They are normally split into three main categories and organised respectively:

  1. Operating activities
  2. Investing activities
  3. Financing activities

Put simply, a cash-flow statement allows you to plan ahead for how much cash you will need and when you will need it. Of course, there will likely be extraneous variables and unexpected costs, but by putting a clear plan of action in place you’re in a better position to be able to mitigate any future cash-flow problems you might experience.

Personally, I like to describe cash-flow statements as the beating heart of your business, such is the importance of getting them right!

The profit and loss statement (P&L)

Sometimes referred to as an income and expenditure statement, a P&L statement is a financial report providing a summary of a company’s revenues, expenses and – of course – profits and losses over a given period of time.

Net profit calculations are based on all of your financial transactions in a specific accounting period, e.g. from 1 January to 31 December (often called the accounting year-end), which will give you a net profit or loss for that timescale.

Essentially, the P&L statement is a measure of your profitability in a given period of time and is the statement that will be used as a basis for your tax liability and tax calculations. It differs from a cash-flow statement in that it is prepared based on accounting principles such as revenue recognition and accruals.

We can help

The first time anyone drafts up either of the above statements can understandably be a bit daunting and it’s important to remember that while you may be starting your own business, you don’t have to do it on your own.

At First Enterprise we pride ourselves on having 30 years’ experience as a business with a team of fantastic advisors ready to help support you on your journey.

As one of the leading responsible finance providers in the East and South East Midlands, we provide loans of between £3,000 and £150,000 to startups and established businesses and also work alongside the Midlands Engine Investment Fund (MEIF). We also provide business advice, offices to work in and so much more.

Whether you’re a new entrepreneur seeking advice or funding, or an existing business looking to expand, contact Suhail on 0115 942 3772, or email

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