The key to success is knowing, ‘What is Accounting?’
Management runs the business. Accounting keeps track of the business. Keeping track of the elements of business that is what Accounting is.
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So what are the elements of business?
Think of this, there are two elements of water, one is Hydrogen and the other one is Oxygen. If any of these two is absent, there’s no water.
In business there are only three elements. Customer. Product, Cash. There’s no business if any of these are missing.
Suppose if opening a shop with no customers. How long do you think it will last? Not very long.
Product is what a customer wants.
Now, if I come up to you and say ‘excuse me what are you selling? you say, Oh, I don’t know what I’m selling just give me your money. How long are you going to go? There is no product. There is no business.
Customers want a product. A business person wants the customers money.
Why do we setup a business? The purpose of starting your own business is to make money. A customer wants a product, a business person wants money. If it satisfies the customers’ needs, he gives us money.
This is a very interesting relationship. So, to keep the customer happy. This is one long term business strategy.
Out of the three elements in business, only two moves. How do they move?
It’s very simple, they move within the customer and you.
When you buy and when you sell, a product goes out to the customer and money comes in.
When you buy, product comes in from the supplier and money goes out.
So, if you take a look at the three elements, two elements move.
When a product comes in, we call it buy.
We call it sell, if a product goes out.
Buy, product comes in, cash must go out – Pay. You buy you must pay.
Sell, product goes out cash comes in. You sell and you collect cash.
As you see, product and money moves in opposite directions.
Product goes to the right, cash moves left. Product and cash must always head in opposite directions.
If your product and cash move in the same direction, you’re in serious trouble.
In selling the product, product leaves. You do not collect money.
Sales including no collection is committing a suicide.
All sales should be attended with cash.
So, let’s look at this. In buying and selling.
When you buy, accountant calls this expenses, when you sell accountant calls this income.
So the movement of product goes directly into the profit & loss account.
Profit and Loss account determine the performance of the business, which is the movement of the product.
Income and expenses equals profit or loss. If the income is more than the expenses, there is a profit. If an income is less than expenses, then there’s a loss.
The movement of cash is recorded in the cash flow statement. Inflow is what accountants call for cash that comes in.
Accountants call cash that goes out as outflow.
If inflow is more than outflow you have a positive balance, a positive net cash flow.
If outflow is more than inflow then you will get negative balance, a negative net cash flow, or a bank overdraft.
How easy could that be for starting your own business? Profit and loss account only determines themovement of product.
Cash flow is measured by the cash flow statement.
Thus, we can tell that profit and loss account has nothing to do with cash.
The movement of products are expressed in dollars and cents but it has nothing to do with cash.
For you to easily remember this. Here’s a song for you to sing, in the melody of Mary Had a Little Lamb
“Profit and loss is performance, performance, performance.
Profit and loss is performance has nothing to do with cash.”
The performance of the business is can be only determined with profit and loss account.
Accounting is simply keeping track of the elements of a business.
Here is a sum-up of these good business ideas, we say accounting is keeping track of the elements of the business. What are the elements of business?
- Customer
- Product
- Cash
How many elements only move?
Two: Product and Cash.
How do they move?
They move in and out, opposite direction.
Buy must be accompanied by pay.
Sell must be accompanied by collect.
Product goes straight into the profit and loss account.
The movement of cash goes straight into the cash flow.
Key to success is knowing that Profit and loss account has nothing to do with cash.
Colin Burr has been in the field of starting your own business for a long time and maintains a site on good business ideas where you can get answers to all of your questions.
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‘Business Intelligence’ refers to the processes and systems that assist businesses with making more informed and wise business decisions by providing relevant information that will help them understand all aspects of a particular issue. Employing these solutions allows analysts to collect different data and metrics for more effective decision making. Today, more businesses are taking advantage of business intelligence solutions to improve business operations, simplify data so that analysts will be better able to understand information, reduce overhead and marketing waste, and make the business more profitable and sustainable. If you are looking to improve how your business operates, there are many ways that you can make business intelligence work for you.
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Effective Discovery and Distribution of Data: Because business intelligence is about collecting different data and business statistics for more efficient decision making, users will be able to provide real time data, distribute it in an effective manner, and thereby make faster and more informed decisions. Users are able to navigate through the data to find the necessary information which will help them decide the next phase of a process.
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Business intelligence can be implemented in any company, no matter what size. It allows a business to find solutions to problems that they were not aware of as well as discover potential future problems so they can take action to resolve the problems and minimize the risks that can cause a project or strategy to fail. Business intelligence helps companies to improve their competitive edge and establish themselves in a highly competitive market.
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Risk management is vital to any business plan as it can help prioritize and organize a company in such a way that will reduce the chances of potential financial or physical damage. It is important for any company to properly understand the potential risks that could come with all business endeavors. This will enable them to be properly prepared and ready to absorb any potential blunders that may occur. This will increase a business’s ability to venture beyond a safe perimeter down the line and will allow for more opportunities for greater profits down the line.
By implementing effective risk management software, a company can properly determine and analyze the potential risks that may come with any endeavor. While all businesses have to venture out in order to increase their capital, it is important to understand what could happen if the risk ends up not generating the desired outcome. Risk management software will be able to generate the best results for a company and increase profitability.
When selecting risk management software, it is important to consider many factors. For example, data used for risk management can be very technical and difficult to analyze if one does not have the proper know-how or knowledge of the discourse used. Therefore, it is important to select software that is user-friendly and comprehensive so that the information can be used to the best of a company’s advantage. In addition, the prediction analysis components must be highly accurate so that the actions are taken accordingly and will provide only the best results. The best risk management software will allow you to take a hands-on approach to managing your company’s risks and increasing your capital.
With risk management software, you should be able to properly identify all potential risks, measure it accordingly and make a decision on how to act depending on what is conveyed through the software. It is important to monitor all business risks and this is exactly what the proper risk management software can help you and your company achieve.
In this economic climate, risks that are not assessed properly can produce devastating results. Such results may be too difficult to recover from and could potentially end up putting people out of jobs or out of business. This is important to avoid at all costs.
There are several types of risks that can be assessed and managed by software. Financial risks can be properly looked at and analyzed in order to avoid future mistakes. You can manage the amount of energy resources that are potentially wasted on certain activities. You can avoid fraud and also gain a clear view on your enterprise and examine where your vulnerabilities lay. It is important to understand where exactly the weaknesses in your business intelligence are so that you can protect your company from any type of risks.
By implementing user-friendly risk management software, you are protecting your business analytics, your employees and your entire enterprise from damaging risks down the line. Understand the potential risks and avoid them accordingly to increase the productivity and profitability of your company.
The economy is very uncertain, so it’s important for businesses to use risk management software to increase certainty. Risk management mitigates risk and gives businesses the opportunity to grow even in a recession.