5 Financial Concepts Every CEO Should Understand
As a CEO, it is important to understand the basics of financial management.
This will help you make sound decisions about your business and keep your finances on track.
In this blog post, we’ll cover five key financial concepts that every CEO should know.
By understanding the following concepts, you will be better equipped to make informed decisions about your business’ future.
1 – Operating Cash Flow
Operating cash flow is the money that flows in and out of your business from day-to-day operations.
This includes things like revenue from sales, payments to suppliers, and employee salaries.
It’s important to track your operating cash flow so that you can see how much money your business is bringing in and where it’s being spent.
2 – Gross, Operating and Net Profit
Gross profit is the money your business makes after you subtract the cost of goods sold (COGS) from revenue.
Operating profit is gross profit minus operating expenses, which are the costs associated with running your business (e.g., rent, utilities, and marketing).
Net profit is operating profit minus taxes and financing costs.
Knowing your gross, operating, and net profit will give you a clear picture of your business’ profitability.
It’s important to understand the difference between the three, because comparing them against one another can help you make decisions about where to allocate your resources.
For example, if your gross profit is low, you might want to focus on reducing your COGS.
If your operating profit is low, you might want to reduce your expenses.
If your net profit is low, you might want to focus on increasing revenue.
3 – Accounts Receivable
Accounts receivable (AR) are the amounts of money owed to your business by customers who have not yet paid.
It’s important to keep track of your accounts receivable and follow up with customers who are late in paying.
If your customers are frequently late to pay, then it’s worth introducing late fees or looking at sharpening up your billing and invoicing processes to get cash in the bank more quickly.
4 – How to Read a Balance Sheet
A balance sheet is a financial statement that shows your business’ assets, liabilities, and equity at a given point in time.
It’s important to understand how to read a balance sheet so that you can see where your business’ money is coming from and where it’s going.
There are three main components to a balance sheet:
● Assets: this includes things like cash, inventory, and equipment.
● Liabilities: money you owe, including loans and accounts payable.
● Equity: this is essentially the money that shareholders and investors would receive if your business’ assets were liquidated and all liabilities were paid off.
By understanding your balance sheet, you can get a better picture of your business’ overall financial health and make informed decisions about where to allocate your resources.
5 – Cash vs Accrual Accounting
There are two main ways of accounting for business transactions: cash basis and accrual basis.
With cash basis accounting, you only record transactions when money changes hands.
This is the simplest way to track your finances, but it can be difficult to get an accurate picture of your business’ financial health.
Accrual basis accounting, on the other hand, records transactions when they occur, regardless of when the money changes hands.
This method is more complex, but it can provide a more accurate picture of your business’ financial situation.
As a CEO, it’s important to understand both methods of accounting so that you can make informed decisions about how to track your finances.
Final Thoughts
CEO’s should understand the five financial concepts mentioned in this article in order to make informed decisions about their businesses’ futures as this will enable you to make better financial decisions to drive your business forward.
After all, knowledge, as they say, is power.
Next Steps
Learn more about how CFO Coach can help:
I help CEO’s earn higher ROI from FMCG Manufacturing Opportunities through Value Maximization on Profit & Cashflow so you can have the Next level of Success, Impact & Abundance.
About CFO Coach:
Discover the proven methodology that Powers Business Growth Opportunities, Profitability and Cashflow by delivering Outstanding Business Outcomes to position CEO’s, Entrepreneurs and Business Owners for Success as we Leverage our Experience, Expertise and Relationships.
DO YOU WANT TO HAVE A BUSINESS THAT GIVES YOU THE NEXT LEVEL OF SUCCESS, IMPACT AND ABUNDANCE?
Your ability to create a business that delivers the kind of life you truly desire hinges on your ability to think Strategically to help you generate more Value Creation Opportunities.
WHAT DO YOU NEED HELP WITH?
✔️ On Demand Virtual CFO
✔️ Strategic Leadership Advisory
✔️ Finance + Business Performance
✔️ Talent + Team Performance
✔️ Business Insights + Intelligence systems
✔️ Growth Opportunities + Advisory
✔️ Profit Maximization + Cashflow Optimization
✔️ Performance Tracking (KPI’s)
✔️ Business + Financial Models
✔️ Raising Debt or Equity Capital
✔️ Corporate Restructuring
✔️ Succession Planning
✔️ Creating a Freedom Lifestyle Business
WHAT IS OUR OFFER?
Our Signature solution, CFO Xcelerate Launchpad™ has been tried and tested to help CEO’s Optimize Cash Flow, Maximize Profit and Grow their Business & Impact
We’ll help you Xcelerate™ in a way you have never thought possible.
Insight Beyond Numbers™
Includes:
✅Mentorship in Personal Productivity & Proficiency
✅Strategic Thinking Coaching
✅Strategic CEO Mindset Coaching
✅Emotional Intelligence (EQ) Coaching for CEO’s
👉 RESOURCES
Get access to the 3 Secret Strategies to Grow & Scale Your Business e-book
Join our Free Facebook Group
Free Complimentary Strategy Call
Ask me: To share my free e-book on Simplicity on Emotional Intelligence.
Coming up in 2022, my New ebooks on Emotional Intelligence for CEO’s, Mastering Emotions, Leadership Guides for C Suite executives and much more
𝗥𝗘𝗔𝗗𝗬 𝗧𝗢 XCELERATE?
👉 WANT TO KNOW MORE
Irfan.Sayed@cfocoach.co.zm
WhatsApp +260967924720