Ignorance is bliss but not when it threatens your daily bread. Here’s a story of how my encounter with Corporate Financial Accounting saved my business from experiencing a nose dive. I’ll liken my experience with CFA to that of a sinner and getting the altar call to give her life to Christ
As a Sole Proprietor (1 investor, 1 owner) who had to run a thriving business for almost 2.5 years with no prior background in finance, I’ll forgive myself for running the business the way I did in the last 6-9 months.
Templebody, a body shaper and waist trainer brand, started off in February 2020 with most of its sales from returning customers because of the quality of products they received on first purchase and the business has experienced an upward trend since then but the last 3 months before my encounter with CFA in July/August 2022, the business struggled to double its inventory (Amount of goods owned by the company at a particular time for selling to earn profit) as was envisaged even with the increase in Revenue (Amount of money earned by the company from the sale of its goods and services).
The business had invested so much in advertisement since inception both from words of mouth and influencer marketing and have moved from working with micro to now macro influencers in the last 6 months. So, what seemed like a breakthrough as we could now afford the “Big Guys” in the social media space as well as serve more women, didn’t seem like it anymore when the business started struggling to double inventory to meet demand.
After the class on the Types of Statement of Accounts, Elements of financial accounting and Analysing different companies, I was restless, I knew I had to probe further so I dug deeper. I had read in one of the technical notes that the purpose of an accounting system is to collect, summarise and represent information concerning the impact of various business events in an organisation status and performance, at that moment I realised we lacked the technical know-how of the latter. There was no proper accountability in terms of financial performance and our record keeping which I thought was great needed a revamp as well.
At this point, I knew it was time to do things differently with the knowledge I had acquired but on the flip side the account wasn’t balancing “lol” so first, I decided to start off with the Income statement also known as Statement of Profit and Loss. I needed to closely monitor Revenue as well as track Expenses (The cost incurred in the course of running the business) in a manner I had never done before so I came up with a plan. But before I go into details on what I did, let me quickly take us through the different Financial Statements.
There are 4 + 1 financial statement namely:
- Statement of Financial Position
- Statement of Profit or loss or Income statement
- Cash Flow Statement
- Statement of change in Equity
4+1. Notes to the Account
No. 2, the Income Statement, which is always analysed second when reporting financial statements, focuses on Accomplishments vs Efforts which is likened to Sales(Revenue) Vs Expenses. So, you see why I started off with that. *chuckles*
While I’m itchy to tell us what I did, we need to first understand what these Financial Statements mean, what they represent and how they apply to our businesses and I’ll be taking that in my next Article so Stay tuned.
See You in my next Article #MEMBA11