You might not have started a small business to get into accounting, but your business’ health, wealth and overall wellbeing depend upon it. Accurate bookkeeping makes the company more effective and gives you a solid platform from which to market and sell products or services.
To succeed with new business accounting, you should first seek to understand the different types of accounts that affect cash flow. You should then decide whether to manage the books yourself or hire a professional accountant.
10 Account Types that Impact Cash Flow
Cash flow, i.e., the ability to meet payroll and pay bills, makes or breaks your small business. You can have the greatest product known to mankind, and it won’t make a bit of difference if debt collectors come calling. They care that you pay the bills, on time, every month.
To prevent financial concerns from becoming cash flow problems, you should track these 10 accounts.
- Cash acts as an overarching umbrella; all transactions visit the account at some point.
- Inventory refers to items in stock and available for purchase.
- Accounts Receivable is money owed by customers for products or services.
- Accounts Payable follows money owed for products, services, utilities, et cetera.
- Loans Payable tracks what you owe on money borrowed to purchase equipment or make payroll.
- Sales monitors revenue from products and services sold.
- Purchases oversee raw materials or finished goods purchased for the business.
- Payroll Expenses must be tracked to meet tax and federal reporting requirements.
- Owners’ Equity monitors money you and other owners invest in the company.
- Retained Earnings tracks business profits reinvested in the company.
How to Manage Your Books
If you decide to do the books for your small business, one rule reigns supreme: institute processes and systems. The two should reside somewhere besides your head. It’s easy to lose track of invoices and accounts if relying solely on memory. Plus, trying to remember all the details only leaves you frazzled, crippling your capacity to pursue leads and other business opportunities.
- Keep a documented timeline of your small business’ expenses, accounting for seasonal trends and potential expenditures. The timeline guides when money should be saved and spent, preventing cash flow problems during a summer slowdown or holiday flurry.
- Record all expenses, including meals and entertainment with clients and gas mileage. You can track expenses in a ledger or spreadsheet; however, your best bet may be cloud-based accounting software, such as the services provided by QuickBooks. With it you can easily track and manage expenses from any device.
- Record all deposits of loans, sales and other sources to your business bank account. You should account for everything to prevent paying taxes on money that isn’t income.
- Track all invoices, both those you have to pay and those owed to you. Paying bills late hurts cash flow, as do delinquent client payments. Also institute a process for unpaid bills, such as sending a second invoice or adding a late-fee penalty.
- Set aside money for tax payments. As a small business owner, you likely will pay quarterly taxes. Budget for them to avoid scrounging for funds when the date rolls around.
Inaddition to the above five tips, you should look into accounting classes. Local SBAs and co-working spaces often offer trainings and workshops.
Hire a Professional
Hiring a bookkeeper is not a mark of failure; it’s smart. Accountants track the minutiae of the business, freeing you to focus on running it. If you choose to work with a professional, make sure you’re in alignment on how to do the books. The worst-case scenario is to hire someone only to discover they use a system completely alien to you.
To find a reputable bookkeeper, you should contact the U.S. Association of Chartered Accountants or the American Institute of Professional Bookkeepers. Bookkeepers, accountants and tax auditors often attend local networking events, too, so you may want to conduct your search there.
Managing the books is critical to your small business’ success. You should begin by understanding the different accounts, then deciding whether to do the books yourself or to hire a professional. You’ll be glad you did because, with greater knowledge of your financial statements comes a greater awareness of your business’ health and the ability to improve it.
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