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 debt, 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
Accounting software. Basic accounting software will help you do things like track expenses and send out invoices, but you may also be able to use it to generate various reports. For example, your accounting software may be able to produce a cash flow statement so you can see where money is coming in and where it’s going out. There are numerous free bookkeeping and accounting programs. If you’re willing to pay for your software, you may be able to get more bells and whistles along with the basics. Accounting services. While you may not be able to afford a full-time accountant on staff, hiring accounting services may be worthwhile for your small business, particularly if you’re too busy or feel uncomfortable delving into the numbers yourself. Accounting services typically handle payroll concerns, but you may also be able to pay them to do other tasks, like preparing financial statements, too. Part-time accountant. Not only can accountants perform accounting tasks, they may be able to spot patterns and suggest strategic solutions to problems like cash flow difficulties
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