Entrepreneur Resources Your source for small business information
People, in general, yawn at the mention of the word “accounting.” It helps keep financial records in order, yet the process involved is one gigantic, boring function. It’s supposed to make things less complicated, yet it almost always sucks up one’s day and makes running a business – big or small – much harder. There’s plenty of ways to go about it, though. And it usually starts with knowing which business aspects to focus on and getting organized.
Be In the Know
When running a small business, it’s imperative that you, as the owner, stay up-to-date with every aspect of finance – from projecting cash flows, down to securing loans from bankers. While expertise in any of these is no prerequisite, a basic understanding of the main components is the key to a company’s success.
Start-Up funding and financial plans. Securing funding is no stranger to a company’s first 3-5 years. Given that start-ups lack financial track records, start-up funding has to be especially creative: from crowdfunding and angel investors, down to venture capitals, accelerators, and incubators. Running in a similar vein is a well-organized financial plan. As a small business owner, it’s crucial that you design a system, which can guarantee that your revenue winds up where you want and need it. The first step? Meet with an adviser and get a good advice on corporate finances.
Cash flow projections, accounting, and bookkeeping. Think of cash as fuel to your car: your tank needs enough to start the engine and has to maintain enough to keep it running. Cash flow then is your business’s lifeblood – with sales forecast and expense estimate as two of its vital aspects: subtract the latter from the former, and the answer you get is pretty much all you need to spot potential gaps in cash balances, guarantee that you have funds to pay your employees and suppliers, identify customer payment problems, and do a whole myriad of other things that might just help determine if your business actually has enough to survive.
Then there’s accounting and bookkeeping. A big ledger book of transactions does wonders, yes, but the process actually goes deeper: collected information is analyzed and recorded figures are interpreted so that important management decisions can be made. The whole process results in such key documents as profit and loss statement (or P&Ls) and balance sheets of assets, debts, and equity – without which businesses cannot function.
Loans and credits. Securing loans usually starts with establishing relationships with lenders and developing comprehensive financial statements and loan proposals. Often perceived as daunting, small business owners can always work with an accountant to make sure the lenders are provided with every single bit of essential info. There will be instances where credit may be a better option; and so, knowing its different types could, in fact, enable you to make the decision, and not necessarily your lender.
Savings, investments, and profits. Once your profits are in the bank, it’s high time that you explore and exhaust the possibilities. Thinking of putting substantial sums into a checking account? Good; however, if it earns little interest, then think again – you may be missing out on an opportunity. Do you know when to invest profits? Great, but see to it that you also know when to plow them back into your company.
Payroll. A zero understanding of how his/her employees are paid is flat-out unacceptable. You have your bookkeeper, sure; however, instead of just having him/her write checks, turn to experts and pick up on everything involved with payroll — writing checks, meeting local tax and insurance requirements, and so on. Stay on top of things, and you spare yourself untold headaches.
From getting a good grasp of the main components, how do small business owners sort out their accounting?
Organization is Key
Start off by handling business and personal finances independently. If you haven’t done so already, separate your personal finances and expenses from your business’s to save yourself hours of work and make it rather easy to keep an eye on all sorts of expenses. From there, speak to a pro. While it’s tempting to save a buck and do the books yourself, accountants have always been small business owners’ allies whose main job is to help get things right.
Of course, it’s just as crucial to get more insights into your business and make other informed decisions yourself. With that said, put some time down for organizing finances – and keep doing it every week. While at it, keep track of what is, perhaps, a huge slice in your pie of expenses: labor; make sure to know what’s what in terms of all the costs associated with it. And finally: get paid, which basically means: keeping proper records of invoices and customer payments.
There’s absolutely no need to be an authority in any of the main financial aspects. You’re running a small business, and wearing many hats is no strange concept. There will always be tasks to be done, sales to be made, and clients to be served. And most of time, your best bet is to just focus on the right things.
