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<\/figure>\n\n\n\nRevenue and money coming into the business<\/strong><\/p>\n\n\n\n Most of us understand that revenue is the income you generate through your sales. If you multiply your average sale price by the number of units sold, this is the top level number you get. It\u2019s a gross figure (i.e. before any deductions) and gives you a clear idea of how much money the business is generating through its sales activity.<\/p>\n\n\n\n Revenue can come from various sources, and each income source is known as a \u2018revenue stream\u2019. Revenue streams could include product sales, income from services you provide, income from intellectual property you own (like patents) or income from assets the business owns, like property you rent out at a profit.<\/p>\n\n\n\n Having several revenue streams is a good idea, as it spreads your income generation across multiple areas and reduces the risk of one revenue stream drying up.<\/p>\n\n\n\n Expenditure and money going out of the business<\/strong><\/p>\n\n\n\n Expenditure refers to any payments you make (either in cash or credit) against the purchase of goods and\/or services. In a nutshell, expenditure is the money that\u2019s going OUT of the business, so it\u2019s important to have a good grip on these costs and to make sure you\u2019re not spending any more money than you need to.<\/p>\n\n\n\n Costs that would fall under expenses include your supplier bills, your payroll expenses, your operational overheads and the costs of any raw materials and goods you buy to keep the business running. The less you pay out in these expenses and overheads, the more of your revenue will end up as profit \u2013 as we\u2019ll see in the next section.<\/p>\n\n\n\n Profit and loss (P&L)<\/strong><\/p>\n\n\n\n Your profit and loss statement (usually referred to as your P&L) is an incredibly important financial report to get your head around. The P&L summarises your revenues and expenditure over the course of a period \u2013 usually for the month, quarter or year that\u2019s just ended \u2013 and gives you a breakdown of the profits and losses the business made during that period.<\/p>\n\n\n\n Let’s get down to basic Business Finances…If you make more in sales revenues than you spend in outgoing expenses, you make a profit (and that\u2019s vital to your success). For any business to be financially viable, your financial model MUST be able to generate profit. Without profits, the business can\u2019t make money, you can\u2019t reinvest back into the company to drive growth, and you (personally) won\u2019t get paid anything.<\/p>\n\n\n\n Cashflow statements and positive cashflow<\/strong><\/p>\n\n\n\n Your cashflow statement is another vital tool in your accounting toolbox. To keep the lights on in the business, you need enough available cash to cover your everyday expenses. Your cashflow statement shows you the cash inflows (money coming into the business from revenues etc.) alongside the cash outflows (payments to suppliers, or operational overheads etc).<\/p>\n\n\n\n For the business to have enough cash in the pot, your cash inflows MUST outweigh your cash outflows. This is called being in a \u2018positive cashflow position\u2019 and it\u2019s a level of financial health that every startup should aim for. By tracking inflows and outflows, and projecting them forwards in time to create forecasts, you can make sure there\u2019s always available cash in the business.<\/p>\n\n\n\n Improving your understanding of the numbers is fundamental to Business Finances<\/strong><\/p>\n\n\n\n It takes time to pick up the financial jargon and accounting terms that will help you understand your accounts. But don\u2019t despair: as your startup journey evolves you\u2019ll gradually begin to get your head around the important numbers, metrics and reports.<\/p>\n\n\n\n Business Finances – Other important finance terms to understand include<\/p>\n\n\n\n