9 Accounting Basics Every Small Business Owner Should Know
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What Is Small Business Accounting?
Liabilities: A business liability is any type of financial responsibility, such as a small business loan, taxes, or even a legal liability. It represents a quantifiable level of risk for the business on the balance sheet. Accounts payable: Liabilities aren’t just long-term. Don’t forget this category, which is the money your company owes to other vendors, creditors, or service providers. Accounts payable should be listed on your balance sheet. Assets: Any goods or property that add value to the business. Assets can be tangible (like inventory or offices) or intangible (such as patents, trademarks, or even brand recognition). They’re itemized on the balance sheet. Accounts receivable: Like liabilities, assets aren’t all long-term. You also need to consider the money owed to your business by others. This category is also an asset on your balance sheet since the client or customer is under legal obligation to pay you.
9 Steps for Small Business Accounting Success
1. Keep Up with Basic Bookkeeping Functions. How often? Daily or weekly
Check your cash balances every day. This lets you know how much is coming in and going out. That way, you’ll stay on top of managing your daily cash and avoid overdrawing any accounts. Record your transactions, including income and expenses. You can use either a spreadsheet or accounting software. Keep and file copies of your receipts and invoices. This makes it much easier to organize paperwork for your tax records when it comes time to file. And if you’re ever audited, you’ll have an organized system with all of those documents at hand.
2. Process Payroll. How often? Weekly
3. Send Invoices. How often? Weekly or monthly
4. Track Upcoming Bills. How often? Monthly
5. Manage Your Cash Flow. How often? Monthly
6. Make Sales and Income Tax Payments. How often? Varies by location — at least quarterly
7. Review and Compare Financials. How often? Monthly or quarterly
Gross margin profit ratio lets you see how much profit your business is making after expenses are paid. Debt-to-equity ratio can help you assess whether or not your company is overleveraged (has too much debt compared to equity). Cost of capital evaluates how much your company must pay for funds. It’s a useful metric for you since it helps you see if your financial decisions are paying off in terms of profit margins. And it’s also something that investors may look at.
8. Prepare Annual Taxes. How often? Yearly
9. Create Annual Financial Reports. How often? Yearly
Some Small Business Accounting Solutions
3 Small Business Loan Tips
Online lenders generally offer fast application reviews and quick access to cash. Conveniently, you can find recommended small business loans by using Lantern by SoFi. If you need to borrow money to cover seasonal cash flow fluctuations, a business line of credit, rather than a term loan, provides the flexibility you likely need. SBA loans are guaranteed by the U.S. Small Business Administration and typically offer favorable terms. They can also have more complicated applications and requirements than non-SBA business loans.
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