MOBE Training: Understand These Terms to Manage Your Business Finances Better

Even if you are starting up your business with great financing, a good business idea, market with great potential and enthusiasm for business, your business is still at a great risk of failure if you don’t understand the basics of the business world, especially the elementary financial concepts. This are basic business concepts that will influence your long term financial strategies, including negotiating and setting up basic cost structures for your business.

This MOBE training guide offers some of the basic, essential concepts you should understand in order to keep your business finances on track.

Gross Margin

Gross margin is your company’s total sales revenue minus the cost of goods sold, divided by total sales revenue percentage. It details the percentage total of sales revenue your company gets to keep after subtracting your cost of production. The higher the percentage, the more your company gets to keep on each sale. Understanding gross margin is very important as it impacts your breakeven and the profit you make beyond break even.

Bottom Line

Bottom line is your company’s income after you have deducted all expenses from returns. It differs from gross margin in that its takes into account all expenses, not just the cost of goods sold. Bottom line includes both your company’s net earnings and net income. You need to understand the bottom line in relation to your financial actions, that is, how your financial decisions will increase or decrease your company’s net earnings. Bottom line will also help you make decision on how much to reinvest and how much to put in your savings accounts.

Benchmark

This are a point of reference set of standards used to evaluate a company’s performance in comparison to industry’s best. Benchmarking usually measures time, quality and cost. Investors will measure your growth looking at the benchmarks you have reached in a certain period of time. For example, they will measure if you have reached the benchmark of having a certain amount of recurring revenue after two years in the market.

Conclusion

These are just a few important financial terms you will meet along your entrepreneurial journey. Understanding them and knowing how each concept can benefit your business will help you improve the way you make strategic financial decisions, thus not only keeping your business afloat, but actually generating great profit that opens opportunity for business growth.