In the startup era, it’s easier than ever to launch a new business.
With barriers to entry for new ventures at historic lows, it’s now extremely common to see aspiring entrepreneurs from all walks of life – including many without any type of formal business training.
Financial Statement Basics
Accounting may not be a glorified part of the modern hustle, but today’s infographic from The Business Backer shows why understanding and interpreting financial statements is important for any founder.
Whether you have the next big idea or find yourself grinding away at a side hustle, understanding the basics of business accounting will help you prepare for the next step of entrepreneurial success.
A financial statement has three main parts: the balance sheet, the income statement, and the cash flow statement.
It’s worth noting that 82% of small businesses fail because they experience cash flow problems, so the latter statement is of particular importance.
What They Do
Here are the basics on each type of statement, and why they are important:
1. Balance Sheet
The balance sheet presents a company’s financial position at the end of a specified date. It provides a snapshot of a company’s assets, liabilities, and shareholders’ equity. This statement essentially shows what a company owns and owes.
2. Income Statement
An income statement is a report that shows how much revenue a company earned over a specific time period. This is perhaps the most intuitive financial statement, as it ultimately shows the company’s profitability – a metric that even the most accounting-allergic business owner would watch quite closely!
3. Cash Flow Statement
A cash flow statement reports the company’s inflows and outflows of cash during a period of time. A company can be profitable, but still be experiencing cash flow difficulties. If not enough money is coming in the door, or if there is a significant lead time to receive revenue, then it’s possible for a company to not meet its short-term liabilities.
How to Take the First Steps in Scaling Your Business
What are the roadblocks to achieving scale? We look at these growing pains, as well as the steps needed to get past them in scaling your business.
How to Take the First Steps in Scaling Your Business
Most entrepreneurs are hungry to bring their company to the next level.
Whether they operate a family-run business or a rapidly evolving tech startup, there is always another milestone in sight. Business owners want to their companies to make an impact with their customers and communities, and they want to keep honing their craft.
But with 27.9 million small businesses in the United States alone, there is no shortage of competition for the same pieces of the pie.
How can you take steps in scaling your business, and do what your competitors are not willing to do?
Roadblocks to Scale
Today’s infographic comes to us from Brunner Consulting, and it breaks down common roadblocks to scaling as well as potential solutions to the problem of decision fatigue.
To begin, we’ll look at a poll of U.S. small business owners, which gives perspective on the challenges most often faced by companies with fewer than 10 employees:
- Profitability (50%)
- Hiring new employees (48%)
- Growing revenue (41%)
- Cash flow (38%)
Unless a business has deep pocketbooks or is venture-backed, there are several obstacles here that may prevent companies from scaling successfully.
A lack of profitability is an obvious limitation, but it’s also clear that revenue growth, cash flow, and adding new employees can be growing pains that may derail any long-term plans.
Why is scaling your business so challenging?
It’s because most types of businesses are not really scalable to begin with. The only sustainable way to scale for most companies is to grow revenue while decreasing operating costs, and for many traditional small businesses (i.e. bakeries, restaurants, hardware stores, consulting, etc.) this can be incredibly difficult.
Even if you come up with a scalable business model, there is yet another obstacle that can prevent your from growing the right way: decision fatigue.
In a growing and evolving company, entrepreneurs can’t do everything – and when they try to make every big and small decision, it affects the quality of those decisions. It can lead to being unnecessarily risk averse, maintaining the status quo, or even avoiding decisions altogether.
Scaling Your Business: First Steps
For a business to grow, there has to be more than one decision-maker.
There are two main routes to this:
1. Delegate Responsibility
In a typical small business, employees find and diagnose problems, while owners focus on solving them. However, by delegating these day-to-day decisions to employees, it frees up owners to work on the big picture items that can fuel growth.
2. Play to Your Strengths
Entrepreneurs can’t do it all, so it’s best to play to your strengths. To do this, outsource business departments that are outside of your wheelhouse. Often those may include things like bookkeeping, marketing, customer service, or website design.
Decentralizing decision-making is one of the first steps in scaling your business – and no matter how you do this, it frees you to focus on the big problems.
The World’s Best and Worst Places for Ease of Doing Business
In some countries, launching a business is easy. In others? It’s a hassle that is littered with bureaucracy, corruption, and a lack of basic services.
The Best and Worst Places for Ease of Doing Business
The Chart of the Week is a weekly Visual Capitalist feature on Fridays.
When it comes to supporting new businesses, not all jurisdictions are created equal.
Whether it’s the basics, like hooking up electricity and registering the business, or more complex regulatory hurdles, your location can impact the success of your venture in a big way. What makes a country business-friendly, and where are the most hassle-free places to open up shop?
The Ease of Doing Business ranking, by World Bank, breaks countries’ complex regulatory ecosystems down into quantifiable components. The resulting index and ranking system is a global look at who’s making it easy to do business, and which countries are struggling.
A Global View of Doing Business
The visualization below looks at the score (0-100) of 190 economies around the world, as well as a spread between high and low scoring factors in the subindices. While two countries may have the same score, one might have a much wider “spread” which points to outlaying successes or serious challenges in their regulatory framework.
Luxembourg, for example, ranked number one in the Trading Across Borders factor, but 173rd in Getting Credit.
Note: click the graphic below of the full list to expand to a higher resolution.
View a high resolution version of this graphic.
Of the 190 economies covered in the report, New Zealand comes out on top for the third year in a row. Singapore and Denmark round out the top three.
The United States, whose ranking has been slipping in recent years, came in at 8th spot.
This ranking offers up some surprises, such as Macedonia and Georgia, which are both in the top 10. Georgia makes it easy to start a new business, and has the lowest number of procedures to get the process going.
Afghanistan had the biggest year-over-year score increase after making big strides in enhancing the legal framework for businesses.
Rwanda is ranked at a very respectable 29th place – the only low-income economy to crack the top 50.
Building the Index
The data for the ranking is compiled from over 12,500 expert contributors in 190 countries who deal with business regulations on a daily basis. The final score is based on the average of 11 factors:
- Starting a business – Procedures, time, cost, and minimum capital to open a new business
- Dealing with construction permits – Procedures, time, and cost to build a warehouse
- Access to electricity – Procedures, time, and cost required to obtain an electricity connection for a new warehouse
- Registering property – Procedures, time, and cost to register commercial real estate
- Procuring credit – Strength of legal rights index, depth of credit information index
- Protecting investors – Indices on the extent of disclosure, extent of director liability and ease of shareholder suits
- Paying taxes – Number of taxes paid, total tax payable as share of gross profit, and hours per year spent preparing tax returns
- Trading across borders – Number of documents, cost, and time necessary to import and export
- Enforcing contracts – Procedures, time, and cost to enforce a debt contract
- Resolving insolvency – The time, cost, and recovery rate (%) under bankruptcy proceeding
- Labor market regulation – Flexibility in employment regulation and aspects of job quality
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