Storytelling of Business
So, you have decided I am going to launch my new business idea. Maybe you decided you are going to amplify the voices of women by starting a publishing house. Maybe you decided you are going to help women heal their gut health and opened your first group coaching course. Or maybe, you are a little bit further and have a few clients you are privately coaching on their fitness journey. It doesn’t matter where you are on that journey, besides you are here reading.
And because you clicked on the link to read this blog, I know you are curious and maybe even a little worried about the accounting and finance backend of your business. First, you are in the right spot. You are not behind simply because you have decided to act.
Before we get any further, I think it is important to call out that a lot of people think that the finance backend of your business is hard and complicated. I know a lot of people have an ick factor related to the word finance or the word accounting. And to be completely honest when I first started college and people would suggest finance or accounting to me all I could think of was men in suits on Wall Street. And that was not the vibe I wanted for my life. So, trust me I can relate to the ick factor and at times it feels like it is too hard to understand, but that is why I am here. I am here to be your accounting bestie. My job is to make accounting and finance MAKE SENSE. Because I promise it can make sense and it can be easy.
Hopefully I have not lost you yet, but when you think of accounting you are probably thinking of loads and loads of math, being up to your ears in excel formulas, and wearing suits full time. But let’s make it even simpler than that. Accounting is the storytelling of business.
Everyone loves a good story, right? Well, that is all that accounting is. The storytelling of business. The language is a little different than you are used to, but remember I am your accounting bestie and we are going to learn the language together. And don’t panic here. We are not learning Spanish or French or Hindu or Japanese. We are just learning the nuances of storytelling for business.
So, let’s talk about some of the basics of accounting. There are 4 different statements in accounting (1) income statement and sometimes called profit and loss (2) balance sheet, (3) Cash Flow Statement, and (4) Statement of Owner’s Equity. We are only going to talk about the first two – income statement and balance sheet because for small businesses those are the two that are going to be the most useful. When and if you start to add investors to your business the Cash Flow Statement and the Statement of Owner’s Equity are more useful. But for the small business you likely have, those two statements are not relevant.
Each one of these statements think of as a story. They tell you different things about the business that are helpful in making different decisions related to your business.
The Income Statement tells the story of how much money you made during a certain period of time. The income statement starts with the revenue that you brought in during that time. So if you had 3 clients this month for nutrition coaching and they each paid you $200, your revenue would be $600 for the month. Then the income statement would show all your expenses. This would be $10 a month you pay for Zoom, the $25 a month you pay to host your website on Squarespace, and the $15 a month you pay to host your podcast. There are of course a million examples of what would be considered a business expense, but this is just a little snippet. In this example, your total expenses would be $50. The Income Statement would then take your total revenue, which was $600 and subtract your total expenses of $50 to get net income of $550 for the month. The $550 is how much at the end of the day you brought in. For most people this will represent how much you have in your bank account at the end of the month. The income statement is useful for seeing how much money your brought in during a given period, and then how much money you spent. You can use the income statement to guide decisions. For example, if you are thinking about taking an additional nutrition course to further your education you could look at your Income Statement to see if you are making enough money each month to cover that course, or maybe you wait to take that course until you have added a few more private nutrition coaching clients. In short, the income statement tells the story of what money you brought in and what money you spent.
The Balance Sheet is a snapshot of your business’ assets, liabilities, and owner’s equity at a point in time. Don’t worry too much about the balance sheet for now because we will go in depth in future blog posts on the definition of assets, liabilities, and equity. But if you want to follow along with the example where we had net income of $550, at the end of the month our assets would be $550 because we would have $550 in cash. We would also have $550 in equity. Don’t worry too much about this one. The main thing to know is the balance sheet is a snippet in time of the assets, liabilities, and equity of your business. If you have every looked at your personal net worth by taking all your assets (cash, savings, how much your car is worth, how much your house is worth) and subtracting how much you owe other people (student loans, credit card debt, mortgage, car loan) you looked at a simplified personal Balance Sheet.
To recap, accounting doesn’t have to be icky men in suits up to their ears in formulas. Accounting simply is the language of business. We get to tell the story of where we spent our money, what we invested in and how much money we brought in. So, it might take a little bit to get used to the new language, but I promise you can learn it!
Your Accounting Bestie,
Savannah