Since you start a company you are listening to people who tell you that the most important thing is to have healthy finances...

Since you start a company you are listening to people who tell you that the most important thing is to have healthy finances, that only then can you grow your business, that with them you can make the best decisions and a series of tips, that at the end of the day you understand the half if you are not related to the financial area.

What nobody told you when creating your business is that you must also be knowledgeable about financial statements, cash flow, and money skills to obtain the best credit aid and even make the best investments of your capital.

So to help you a little with this topic, we have created this guide that, we are sure, will help you better understand your accountant, your partners and learn a little more about how important it is to know more about finances, the market and accounting. Of your company, because it will help you make the best decisions at the right time.

To start, let's talk about what finances are or what they refer to when they say this.

What are finances?

In simpler words, finance is all activities related to cash flow and business. In the case of a business, they are all the activities aimed at generating and investing resources.

So simple we can define this concept, if you are earning by investing, spending or saving resources (employees, tools, money, furniture, property), you are doing finances. But what are healthy finances? To better explain all this, we need to understand more about accounting.

This is because there is a very close relationship between accounting and finance since, for the development and good management of the latter, information from the former is required, and so you will be able to learn more about your company and the external economy.

It is essential for the person in charge of finances and the partners or owners, to have knowledge of the accounting information of the business, since this information is used to understand its situation, plan its future and understand how to correct the path, in case it is needed.

Suppose you decide to invest your money in new machinery for your business, but everything you bought was in foreign currency, so your job as manager of your money was to acquire a currency hedge. If you did not do it and there is a devaluation, you will be in a problem because you will surely not be able to pay for your purchases.

The proper management of finances in organizations can be the difference between being successful or not, there are companies that have not been able to survive due to poor financial decisions or lack of timely actions, for example, a company that has its liabilities in dollars and does not have the precaution of acquiring an exchange coverage for the payment of its debts and a devaluation arrives, it could be the case that the company cannot pay said debts due to the increase in the amount of its liabilities, a situation that can be avoided if take due financial precautions.

Let's talk about important concepts that you will be interested in knowing and understanding. The most important and the one you should have as basic is the Balance Sheet. So let's quickly explain what it is:

Balance sheet

It is perhaps the most important information and is created from the information on assets and liabilities (which we will explain below). Many call it as a snapshot of your business and its finances as you can clearly see how much money you have and how much debt you have. Ideally, you should have more assets than liabilities, so that earnings are shown.

Active

It does not refer to a person who is on the move all the time, in the case of finances, it speaks of any possession that has a value. Let's say, if you can trade it for something else, it can be called an asset.

Assets can be money, accounts receivable from customers, inventories, machinery, land, licenses and patents. They can be divided into two: surrounding and fixed. The former refers to all those in which profits can be made in less than a year, while the latter are those that take more than a year.

Passives

This second term is closely linked to the previous one, since they represent the debts that your business has, or how you have obtained your assets (loans, credit, funding). Within the liabilities, they can be classified as non-banking or suppliers, non-banking institutional creditors and banks.

The former refer to suppliers of raw materials, advertising materials, consultants and other companies that provide services to ours. Non-bank institutional creditors can be the SAT, Social Security or any institution to which you must pay mandatory fees or taxes, which if you do not do so results in a fine. The latter are one of the most common forms of financing for a company. Loans from these institutions are known as "credit principal" and the income they receive is called "interest or commissions."

All this is clear, but when starting, where do companies get money? There are different ways, but these are the most common and it will help you to understand their advantages and disadvantages.

Statement of income

As such, it is a summary that changes constantly since it takes an interval of time to evaluate the profitability of your company. In it you can know in detail the financial movements and the impact on the sales that the company has.

The Income Statement is made up of sales, which as such are the income generated by selling your product or service. The cost of sales, which is everything spent to produce your product or service.

Operating margin this data is obtained by subtracting net sales minus total sales costs. The result gives you the net value obtained from the sale and marketing of the products.

You will also find information on operating expenses, and they are those that are made when managing, collecting and analyzing information, as well as investments in marketing and advertising.

One of the most prominent is income before interest, depreciation, amortization, and taxes, which is obtained by subtracting the previous two. The result is known by its acronym in English EBITDA (Earnings before Interest Taxes Depreciation and Amortization).

You will be able to see in the Income Statement a space dedicated to the interest of the period that is owed to banks for the credits that the company has.

Just as there is income before interest, there is also income before taxes and net income, which are obtained by subtracting depreciation, amortization and interest from EBITDA to obtain the tax base. The tax rate according to the branch of industry and the locality is applied to this base in order to have the amount that must be paid to the treasury.

At the end of the entire Income Statement it will help you obtain the net benefits, this is by subtracting depreciation, amortization, and bank interest from EBITDA. Depending on the needs of the business, it will help you understand if you have to pay your debts, distribute profits or reinvest the profits.

Cash Flow

This is money and the way it arrives and is seen in your business. With this information you will be able to know the movements of money that are expected to have the future, obtain timely information for decision making.

With this financial statement you will be able to know information on where the most money is spent, the capacity you have to pay debts, taxes, credits and others. And it will allow you to make better decisions about short-term investments when there is excess cash on hand.

Financial indicators

Another concept that you should know is that of the International Financial Standards (NIF) that indicate that financial indicators are used to show the relationships that exist between financial statements and show solvency, liquidity, profitability and operational efficiency.

• Solvency: Evaluates the company's ability to meet its immediate commitments.
• Liquidity: Measures the payment capacity of a company.
• Profitability: Measures the return or earnings of the investments and operation of the company.
• Operational efficiency: Measures the efficiency of operations such as collection, inventory management, and leverage with suppliers.

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