11 Essential Financial Concepts for Entrepreneurs

Financial concepts must be considered as something fundamental within any company. Having a full understanding of these facilitates the elaboration of strategies in order to make the operation and profitability of a business more efficient.

According to a 2022 Ipsos report, it was estimated that 55% of the Mexican adult population planned to start a business in the future. This is an interesting percentage that should be supported by all that it would represent for the economy and the creation of jobs in the country.

In relation to the above, it will also be essential for entrepreneurs to learn basic notions regarding the management and administration of SMEs, as well as to be clear about certain financial terms to aim for success.

Financial concepts that are essential to know

On this occasion, the topic will not revolve around advice for entrepreneurs, but rather the last mentioned, concepts that can be very important so that you can plan and put into perspective the movements in the financial management of your organization.

1.Capital

It is the money that a company has, through assets, investors and income, which is important to use in initiatives that promote proper operation and growth of the organization.

2. Assets

They are both tangible and intangible assets (for example: computers, machinery or patents) that a company possesses to be able to operate on a day-to-day basis.

3. Liabilities

These are the debts contracted with any financial entity. They relate to tangibles and intangibles that have been acquired with borrowed capital that has yet to be repaid.

4. Income

They are the increase in the capital of a company, what is obtained by the recovery of assets and that increase the net worth of an organization.

5. Expenses

This refers to the money that is destined to obtain raw materials, goods or services that a company needs.

6.Margin

This is the difference between the cost of producing a service or product, and the price at which it is sold. The higher the margin, the higher the company’s profits.

7. Balance point

It is one of the desired aspects within the management and administration of SMEs, the “break-even” or equilibrium point, it is the moment in which the income generated is compensated with the expenses.

8. Cash flow

The “cash-flow” is a report or financial report that shows the inflows and outflows of capital in a company during a given period.

9. Return on investment

The ROI is another indicator, this makes it possible to evaluate how profitable an investment is, based on the capital that was allocated to it and the benefit that is obtained.

10. Liquidity ratio

It is an indicator that serves to measure the capital that a company has, the capacity of resources that it has to face its operation and its financial obligations.

11. Loans and credit

They are two types of financing that have their own characteristics, but in general it can be said that loans are more oriented to short-term projects and have a lower interest rate than credits, which are more focused on the long term.

Pymes Capital accompanies you in the process

Now that there is more clarity regarding the basic terms for your venture, you have more tools to succeed, and when it is time to expand, you will be able to request financing and apply for appropriate financial management.

At Pymes Capital they will be waiting for you, so that you go for a type of financing, easy and fast, that will take your business to the next level.