Small Business

Financial Fundamentals For the Non-CPAs

October 25, 2022

During a visit with Alicia this summer while talking about the business, I realized that I knew very little about some of the things she was talking about – things like equity, assets, liabilities, financial statements, cash flow, etc. I realized I’d been working at remote accounting firms since early 2017, yet I had very little understanding about the financial information that I’d been requesting from and sending to clients, that the Managers on my team talked about daily, and that I was prompted to enter in the apps I set up for clients. I knew what I needed to know to do my job, however I realized I wanted to learn more about this amazing business I am part of.

Alicia talks often of Shannon Pestun and Shauna Frederick of The Finance Café and if you don’t know of them, please stop reading now and go check them out! They offer different financial learning experiences for women entrepreneurs; you can choose between their self-directed programs, their cohort-based programs, and other experiences like webinars. As a woman new to learning about balance sheets, profit & loss statements, and cash flow statements, I can tell you that the self-directed programs I did were super approachable and I learned a tremendous amount. I’d recommend the courses to anyone looking to dive into examining their money mindset and financial fundamentals.

To start, I did the “Your Money Mindset” course which is built for entrepreneurs, however I took the course and applied it to myself personally. What I learned/re-learned from that experience and what kept coming up over and over is that:

  • I have anxiety around my money when I am not tracking how I am spending / am living outside of my means;
  • I need to re-visit my personal budget and update it;
  • I need to use my budget (it’s one thing to have one but another to follow it)

I knew all of this before I did the course, but as can happen, I fell away from my good habits around budgeting. This course was a great reminder as to why these action items are important for me. Your Money Mindset course is perfect for entrepreneurs to help you understand how we feel about money & what we can do about it.

Next up was the “Financial Fundamental” course which consists of 5 lessons and one quiz. Truthfully, I failed the final quiz by one point the first time I took it! But I did pass it the second time around… and I took it a third time for good measure. I learned so much in this course, took many notes, and know I will reference and build on these notes in the future. Here’s a bit about what I learned:

Financial statements are made up of three statements (I literally did not know this):

  • Balance Sheet
  • Profit & Loss Statement
  • Cash Flow Statement

Ok, this gets a little bit more in-depth, so I won’t be offended if you’d like to skip the rest. But, if you’re new to business financials, need a refresher, or own a business but try to stay away from this stuff, I urge you to lean into it! I found it really empowering to finally learn about these things that are getting talked about around me. And, you know, it wasn’t as overwhelming as I thought.

  1. Balance Sheet > Does my company have a positive or negative net worth? The balance sheet is important because it captures your business’ assets (what you own), liabilities (what you owe), and equity (shareholder and owner equity). It gives you a clear idea of the business’ financial position. I also learned the difference between current and non-current assets – current can be converted/liquidated/sold for cash in less than a year and non-current are items held for longer than one year.

A way to think about it: if you take all of your assets (current and non-current) and sell them, then you pay off your liabilities (current and non-current), what you are left with is the equity portion of your business.

  1. Profit & Loss Statement (aka Income Statement) > What is the amount of profit the business keeps after all the expenses are subtracted from revenue? This statement summarizes the revenues, costs, and expenses incurred during a specific period, usually a quarter or a year. This statement I found a little more challenging to wrap my head around.

Some technicalities I learned:

Gross profit = your total income less total COGS (cost of goods sold)

Operating profit = gross profit (sales less the direct cost to make the product, like raw ingredients, labour that is directly related to making the product, and shipping) less all the other expenses (e.g. office supplies, marketing, employee holiday party, etc.).  

Expenses are made up of three different groups: direct, operating, and other.

  • Direct expenses (COGS)
  • Operating expenses (the indirect costs to keep your business running – rent, salaries, insurance, subscriptions, etc.)
  • Other expenses (expenses outside of your core business function like interest, tax, etc.)
  1. Cash Flow Statement > How is cash flowing in and out of the business? Shauna and Shannon told me in the course that this is arguably one of the most important of the three financial statements! The cash flow statement is the financial statement that summarizes the movement of cash that comes in and goes out of a company. 

How does it do this? It tells us:

  • Operating cash flow (the cash your company is collecting or spending from your core business activities)
  • Investing cash flow (the cash your company is using to purchase capital assets, investments or securities or getting by selling these assets)
  • Financing cash flow (the cash your company gets from external financing or uses to repay its external financing)

I picked up a lot of other nuggets from the course but one that really stood out to me and that I’ve heard our team talking about:

Don’t assess how financially successful your business is by the balance in your bank or the net income on your income statement! There’s a whole story behind your bank balance and diving into the cash flow statement can really help you understand where your cash is going.

Thanks for reading and I hope some of this information was helpful to you. If you want to go on your own financial fundamentals adventure, I highly recommend you check out The Finance Café! And if there’s anything MOD can help you with, with your own business, please do reach out.

Brianna Courneya