How to calculate your profit ≠ Cash Flow 📍 | Gary Jain 🚀 posted on the topic | LinkedIn (2024)

Whyworking capital is the lifeline of your business and what you need to know 👇Let’s understand from the basics:I have worked with 100+business owners till now!And 70% of them struggle with working capital management.Here’s what I advise them:Working capital is the lifeblood that keeps any business operating smoothly day-to-day. At its core, working capital measures the cash readily available to fund your short-term operating expenses and obligations. It's calculated simply as:Working Capital = Current Assets - Current LiabilitiesThe goal is to have a positive working capital surplus, ensuring there is enough constant cash inflow to cover outgoing payments. Negative working capital is a major red flag - it means a company can't pay its bills and obligations as they come due.Properly managed, working capital allows a business to:[1] Pay its employees, vendors, and creditors on time[2] Maximize cash on hand to reinvest internally[3] Take advantage of investment opportunities[4] Maintain healthy growth and operationsHowever, most businesses struggle with working capital due to:[1] Slow-paying customers delaying accounts receivable[2] Short payment terms with suppliers straining cash[3] Excess inventory sitting as unrealized cash[4] Inability to forecast cash flow accuratelyEven profitable companies can go bankrupt from working capital deficiencies that leave them unable to pay their bills. Relying on debt or outside funding to cover operational expenses is extremely risky.The smart solution is implementing systems to continuously monitor and improve your cash conversion cycle. Done right, strong working capital management optimizes liquidity, minimizes costs, and unlocks opportunities for sustainable growth.I hope this helps!Want to learn more about Working Capital ? Follow the FREE PLAYBOOK below!****What strategies do you follow to manage working capital?Share in the comments below!___________Found useful? ♻️ Repost this to help other business owners too. Follow me for more finance tips and cheat sheets. #workingcapital #businessaccounting #finance

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Tired of spending countless hours on tedious accounting tasks?- Manually entering data- Generating reports, and- Reconciling accountsThese menial processes are slowly draining your productivity and sanity.What if you could reclaim that lost time and direct your focus towards more strategic, high-impact work? 𝗧𝗵𝗶𝘀 𝗻𝗲𝘄𝘀𝗹𝗲𝘁𝘁𝗲𝗿 𝗴𝗼𝘁 𝟭𝟱 𝗧𝗶𝗺𝗲-𝗦𝗮𝘃𝗶𝗻𝗴 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗲𝘀 𝗳𝗼𝗿 𝗔𝘂𝘁𝗼𝗺𝗮𝘁𝗶𝗻𝗴 𝗬𝗼𝘂𝗿 𝗔𝗰𝗰𝗼𝘂𝗻𝘁𝗶𝗻𝗴 𝗣𝗿𝗼𝗰𝗲𝘀𝘀𝗲𝘀:Sounds good?Read the newsletter now and share with other business owners too.#accounting #tasks

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Adjusted EBITDA confuses most entrepreneurs but it is one metric you can't afford to ignore.Why? Because investors OBSESS over Adjusted EBITDA when evaluating the health and potential of your business.But what makes Adjusted EBITDA so valuable?It stands as a key financial indicator that strips away the layers of non-operational expenses and revenues, offering a clean lens through which the core performance of a business can be evaluated. But why should you, as a business owner, investor, or financial enthusiast, care about Adjusted EBITDA? Its value transcends mere digits on a balance sheet.Consider it your lens to:-> Gauge operational efficiency,-> Assess financial well-being, and-> Predict future growth potentialacross varied enterprises and sectors.Here's why Adjusted EBITDA is indispensable:[1] It levels the playing field across industries, setting aside the financial anomalies unique to each.[2] It zooms in on the genuine profit margins by sidelining non-operational expenses.[3] It serves as a crucial element in company valuation, providing a clear perspective on the operational cash flow.While it may initially appear daunting, Adjusted EBITDA is a crucial piece of the financial puzzle, offering clarity, enhancing strategic decision-making, and opening doors to investment and growth.***Do you focus on improving the EBITDA? If yes, HOW?Shoot in the comments below!___________Found useful? ♻️ Repost this to help other business owners too. Follow me for more finance tips and cheat sheets.#ebitda #businessaccounting

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82% of businesses tank due to cash flow issues.Do you fall under the same?Is it keeping you also up at night?Here’s how you can turn the tide and put yourself back in control.Before that, let’s understand why you need to be hyper-attentive while managing cash flow:Cash is the oxygen that keeps your business alive and thriving. Without enough cash on hand, you can't make payroll, pay suppliers, or cover operating expenses. This lack of liquidity quickly leads to serious problems like:- Damage to your credit- Missed opportunities- Penalty fees- Bankruptcy.Here are my top 3 foolproof cash management tips:1) Budgeting:→ Develop realistic budgets for accurate projections.→ Enhance financial planning and resource allocation.2) Accounts Receivable Management:→ Implement efficient invoicing for timely billing.→ Offer incentives for early payments.→ Actively pursue overdue payments.3) Credit Policies:→ Refine credit policies for prudent extension.→ Conduct thorough customer credit checks.→ Establish clear terms for credit sales.Don't ignore cash management until it's too late. Why? Because Implementing systems like these will provide more: -> Financial stability-> Less stress, and the-> Ability to make strategic decisions for growth.I hope this helps!Want to learn more about CashFlow?Follow the FREE PLAYBOOK below!Enjoy!Found useful?♻️ Repost this and let’s take it to other business owners too. ***Follow me for more finance tips and cheat sheets. #cashflow #finance

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IFRS and GAAP are just different names for the same accounting standards.I've seen firsthand how failing to understand the distinctions between IFRS and GAAP can lead to: - Inaccurate financial statements- Compliance issues, and- Legal consequences.In this post, I'll break down the key differences between IFRS and GAAP:Let’s begin:IFRS: It is a set of accounting standards developed and maintained by the International Accounting Standards Board (IASB).GAAP: GAAP is a set of accounting principles, standards, and procedures used by companies in the United States for financial reporting.Both the methods impact your financial statements. Here’s how 👇[1] Revenue Recognition:IFRS:Permits more flexibility, focusing on principles-based guidance.GAAP:Provides more detailed, rules-based guidance.[2] Lease Accounting:IFRS:Allows both finance and operating leases.GAAP:Requires both leases to be recognized on the balance sheet.[3] Goodwill Impairment:IFRS:Tests for impairment at the level of cash-generating units.GAAP:Follows a two-step process, assessing for impairment at the reporting unit level.**Do you want to learn in detail what is the effect of IFRS and GAAP on the financial statement ?Below is a detailed cheatsheet for you!I hope this helps!Want to learn more about the differences between IFRS and GAAP?Follow the FREE GUIDE below!Enjoy!Found useful?♻️ Repost this and let’s take it to other business owners too. ***Follow me for more finance tips and cheat sheets. #ifrs #gaap #finance

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Fix your profitability blindspot with this secret 👇- ACCRUALSI didn’t fully grasp the concept of accruals or why they mattered to my finances. But recording accruals accurately is crucial for understanding your true revenue and expenses each period.Accruals are accounting entries made to recognize revenues or expenses before the actual cash transaction occurs.Here’s how it impacts your financial statements:▶️ 3 Ways It Impacts Income Statement:→ Revenue is recorded regardless of cash receipt.→ Accruals recognize revenue based on when it's earned.→ Expense recognition is not tied to when the payment is made.▶️ 3 Ways It Impacts Balance Sheet:→ Accrued expenses create liabilities.→ Represents amounts owed but not yet paid.→ Represents amounts to be received in the future.Examples: salaries, utilities, and interest.Accruals match expenses with revenue generated in a period.-> Accrued Revenue:Recognizes economic benefit before actual cash receipt.Examples: services provided but not billed, interest earned but not received.Advantages:[1] Accruals align revenues with expenses.[2] Enhances accuracy in financial performance representation.[3] Removes the need to wait for cash transactions.The most common challenges faced:[1] More complex compared to cash basis accounting.[2] Requires a solid understanding of accounting principles and concepts.[3] Proper management of accruals is necessary to avoid issues or discrepancies.Overall mastering accruals can be a game-changer for business owners seeking to truly understand their profitability and make informed decisions based on accurate financial information.***I hope this helps!Below is a detailed graphical representation of ACCRUALS.Enjoy!Read it. Save it. Implement it...Found useful?Repost this and let’s take it to other business owners tooWho needs to know this!P.S: Every 6/7 days in a week, I make business and financial education easy and fun for you.#accruals #businessaccounting #financeandaccounting

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I talk to 50+ business owners / week.Around 85% of them are always stuck in confusing business choices. Below are 7 ways how Accounting Equation can simplify things, Making your decisions crystal clear.I hope this helps!Grab your FREE PLAYBOOK and follow me for more practical tips around accounting.__Enjoy!Read it. Save it. Implement it...Found useful?Repost this and let’s take it to other business owners tooWho needs to know this!P.S: Every 6/7 days in a week, I make business and financial education easy and fun for you.#accounting #finance

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Attention founders who confuse Accruals and Deferrals!6/10 small business owners suffer from financial errors that..-> Undermine profitability analysis and operational decisions.Here’s what you need to know about Accruals and Deferrals!📍 𝗠𝗲𝗮𝗻𝗶𝗻𝗴 𝗼𝗳 𝗔𝗰𝗰𝗿𝘂𝗮𝗹𝘀:→ Accruals involve recognizing revenues or expenses in the financial statements before the corresponding cash transaction takes place. → This helps to portray a more accurate depiction of a company's financial performance during a specific period.📍 𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝗶𝘁 𝘁𝗲𝗹𝗹?→ Match revenues and expenses with the period in which they are earned or incurred, providing a more realistic view of the company's financial health.📍 𝗠𝗲𝗮𝗻𝗶𝗻𝗴 𝗼𝗳 𝗗𝗲𝗳𝗲𝗿𝗿𝗮𝗹𝘀:→ Deferrals involve recognizing revenues or expenses in the financial statements after the corresponding cash transaction has occurred. → This is done to accurately depict when economic benefits are realized or consumed.📍 𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝗶𝘁 𝘁𝗲𝗹𝗹?→ Align financial statements with the timing of cash flows, ensuring that reported revenues and expenses are tied to the actual receipt or payment of cash.**Do you want to learn in detail how Accruals and Deferrals are different from each other?Below is a detailed guide for you!Enjoy!Read it. Save it. Implement it...Found useful?Repost this and let’s take it to other business owners tooWho needs to know this!#accruals #businessaccounting

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Neglecting amortization? Stop now, or watch your business crumble.Many businesses fail to properly account for amortization when reviewing their numbers.Are you also making decisions based on incomplete information?Amortization can have a significant impact on your financial ratiosBut many business owners overlook this important factor. Here’s what will help you make informed decisions:Let’ begin:📍 𝗠𝗲𝗮𝗻𝗶𝗻𝗴 𝗼𝗳 𝗔𝗺𝗼𝗿𝘁𝗶𝘇𝗮𝘁𝗶𝗼𝗻:Amortization is an accounting method used to allocate the cost of intangible assets over their useful life.📍 𝗪𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝗶𝘁 𝘀𝗶𝗴𝗻𝗶𝗳𝘆?▶️ 𝗔𝗹𝗹𝗼𝗰𝗮𝘁𝗶𝗼𝗻:Amortization allocates intangible asset costs.▶️ 𝗨𝘀𝗲𝗳𝘂𝗹 𝗟𝗶𝗳𝗲:Spread over the asset's useful life.▶️ 𝗘𝘅𝗽𝗲𝗻𝘀𝗲:Results in periodic amortization expenses.▶️ 𝗕𝗼𝗼𝗸 𝗩𝗮𝗹𝘂𝗲:Gradually decreases the asset's book value.▶️ 𝗠𝗮𝘁𝗰𝗵𝗶𝗻𝗴 𝗣𝗿𝗶𝗻𝗰𝗶𝗽𝗹𝗲:Aligns with matching costs to revenues.📍 𝗜𝗺𝗽𝗮𝗰𝘁 𝗼𝗳 𝗔𝗺𝗼𝗿𝘁𝗶𝘇𝗮𝘁𝗶𝗼𝗻:▶️ 𝗣𝗿𝗼𝗳𝗶𝘁 𝗠𝗮𝗿𝗴𝗶𝗻𝘀:Impact: Reduces reported profits.Result: Lower net profit margins for accurate efficiency assessment.▶️ 𝗥𝗲𝘁𝘂𝗿𝗻 𝗼𝗻 𝗔𝘀𝘀𝗲𝘁𝘀 (𝗥𝗢𝗔):Impact: Decreases asset value.Result: Potentially lower ROA for a more accurate measure of asset efficiency.▶️ 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗖𝗼𝘃𝗲𝗿𝗮𝗴𝗲 𝗥𝗮𝘁𝗶𝗼:Impact: Non-cash amortization affects the denominator.Result: Influences assessment of meeting interest payments.▶️ 𝗗𝗲𝗯𝘁 𝗥𝗮𝘁𝗶𝗼𝘀:Impact: Affects debt ratios for firms with significant intangible assets.Result: Offers a more accurate measure of leverage and financial risk.▶️ 𝗘𝗮𝗿𝗻𝗶𝗻𝗴𝘀 𝗕𝗲𝗳𝗼𝗿𝗲 𝗜𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗮𝗻𝗱 𝗧𝗮𝘅𝗲𝘀 (𝗘𝗕𝗜𝗧):Impact: Amortization is subtracted from EBIT.Result: Adjusted EBIT reflects operational performance, excluding amortization.**Do you want to learn in detail how Amortization Impacts Financial Ratios?Below is a detailed cheatsheet for you!Enjoy!Read it. Save it. Implement it...Found useful?Repost this and let’s take it to other business owners tooWho needs to know this!P.S: Every 6/7 days in a week, I make business and financial education easy and fun for you.#amortization #financialratios

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