Finance

Finance is the management, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems, as well as the study of those financial instruments. The Finance Team is the unsung hero of Fair Haven Innovates. Without the Finance Team, we can’t grow our businesses.

 

Here are the simple rules for the Finance Team:

 

  • Know The Numbers
  • Update The Book
  • Minimize Expenses
  • Maximize Income

Know The Numbers

 

Not understanding how to make business decisions based on the numbers is a crime. As a member of the Finance Team, you’re responsible for knowing the numbers and thinking of ways to improve how much money we make a month, also known as the bottom line. Below is a list of finance terms that every member of the Finance Team should be able to talk about.

 

  • Assets – The amount of money we have in the bank along with anything that can be sold to generate more money.

 

  • Liabilities – any debts or financial obligations we owe.

 

  • Accounts Receivable – The amount of money we are owed by customers.

 

  • Accounts Payable – The amount of money we owe vendors.

 

  • Net Income – Net Income, sometimes called Net Profit, is the result of subtracting all our expenses, including taxes, from our income. Net profit is a good indicator of whether we’re making or losing money. This information can be found on the Income Statement.

 

  • Sales – When we sell a product to someone, we’ve made a sale. Keeping a close eye on sales is important, as a dip could be a warning sign of trouble. In the same respect, it’s important to pay attention when sales are up. Determining why business is good at the time when our businesses are selling more products is easier than trying to figure it out later. Reacting quickly to an increase in sales also allows you to determine what you need to keep doing to sustain that growth. Check The Ledger to see our daily sales figures.

 

  • Cost of Goods Sold – The Cost of Goods Sold are the direct costs it takes to make a finished product. This amount includes the cost of the materials used in creating the product along with packaging, shipping, etc.

 

  • Price Point – The Finance Team must always know the Cost of Goods Sold because it helps us set the Price Point. The Price Point is how much we sell our product for. If we set the Price Point to low, we won’t make enough money to cover our expenses. If we set the Price Point to high, people may not buy our products. Setting the right Price Point is crucial to making our products successful.

 

  • Gross Margin – Also known as your gross profit—and related to price point—Gross Margin reflects how much money remains after the actual cost of our product is subtracted from the selling price. Gross Margin is often expressed as a percentage. Gross Margins can be found on the Income Statement.

 

  • Total Inventory – We must monitor our inventory numbers on a weekly basis to ensure that the amount of inventory isn’t gradually increasing, as this could be a sign of sales trouble. By tracking inventory on a regular basis, you can spot problems early enough to avoid the negative effects of excess inventory like reduced profits and waste.

 

Understanding your critical financial numbers may not be as exciting as making a big sale, but keeping an eye on these must-know figures will give you precious peace of mind—and a glimpse of what the future holds for your business.

Update The Book

 

There are five financial reports that make up The Book. It is the Finance Team’s job to keep them updated.

 

  1. The Ledger– The ledger is a list of all the transactions we make as a business. This should be updated every time we make or spend money. The total should match the amount of money we have in the bank.
  2. Income Statement– The Income Statement is a monthly snapshot of our businesses income minus expenses. Knowing our profit and loss over time allows us to project earnings and make realistic plans for the future. Use The Ledger to update the Income Statement.
  3. The Balance Sheet– The Balance Sheet is a big picture document that shows the financial position of our company. It should be updated every month.  
  4. Inventory Sheet– The Inventory Sheet catalogs not only how much product we may have onhand but also how much we have in supplies and when we should order more supplies or products. It should be updated weekly.
  5. Accounts Analysis Sheet – The Accounts Analysis sheet keeps track of accounts receivable, accounts payable, invoicing, and payments. It should be updated whenever we have long term debits or credits.

Minimize Expenses 

 

Expenses are the cost of doing business. Everything from supplies like Post-It notes and pencils to the cost of making and advertising our products is an expense. Your job as member of the Finance Team is to find ways to reduce our expenses.

 

Find practical and creative ways to minimize expenses.

Maximize Income

 

Income is the money our business makes. As a member of the Finance Team, you should always be looking for ways to maximize our income. The more money we make the more we can donate to FH Gives to help others!