There’s a steep learning curve to starting a business, and learning about business accounting is much more difficult. You might be able to handle it all yourself at first, but when your business grows and you have too many transactions, outsourcing your finances to an accountant will be a good move. However, as a business owner, it’s still essential that you have some basic knowledge of accounting to be able to run your company efficiently.
There is a lot of area to cover when talking about business accounting and it will take years of experience and education before you can truly master everything. The good news is that you don’t have to be an accounting expert to launch a small business. Taking small steps and knowing the basics is all you need.
Business Accounting Basics
When dealing with finances, there are specific accounting terms professionals use. To be able to understand what is happening in your company, you must be familiar with the fundamental terms. Here are several business accounting basics that you should become familiar with.
- Assets: Assets are defined as everything your business owns that has an equivalent monetary value.
- Accounts payable: Accounts payable are all expenses that your business needs to pay, likerent, manufacturing costs, shipping fees, and all other expenses your business owes.
- Accounts receivable: Accounts receivable are the revenue your business will collect from sales and investments.
- Accrual: Accrual is a method of accounting where your incomes and expenses are immediately recorded as they are made. So your real-time revenue won’t always match your books.
- Cash flow: All of the money that enters and leaves your organization is known as cash flow. It is categorized as your loss and gains. Operations, investments and other departments of your business that need financing all involve cash flow.
- Liabilities: Everything that your company legally owes, like credit card debts, business taxes, and mortgages, are classified as liabilities.
These terms are just some of the basics you will encounter when handling finances for your business. Get familiarized with them so in the event that you hire an accountant in the future, you can understand each other during consultations.
Accounting Basic Tips for Every Business Owner
Handling your accounting needs when your business is still small will help in strategic financial management as it grows. By the time your business expands, you will have clear knowledge of what goes in your finances even if you outsource the job to an accountant.
Here are some excellent accounting processes that you, as a new business owner, should adhere to.
Track every transaction
Behind every successful accounting procedure is a clean and organized record. That is why getting a bookkeeper or doing the bookkeeping yourself is important. Record all expenses and sales you make in your business no matter how small or big they are. In the business world, no amount is too small to let it slide off the records.
As a business owner, being accurate and detail oriented is a must. Every bit of data in your financial records will come in handy when you analyze the overall financial health of your business.
Take advantage of modern software solutions
Almost everything today can be done using computer software. Make use of the accounting and bookkeeping software that are available. The automated software is a great convenience for business owners. Recording data is easier and faster. It’s also more secure from data breaches and leaks.
Accounting software can also produce instant financial reports when you need them. Moreover, accounting software is cloud-based so you are sure that your data is backed-up and you won’t lose any of your important financial records.
Maintain adequate inventory control
Managing your accounting includes managing your inventory as well. The management of inventory is crucial to the success of any organization. You can deliver to your consumers on schedule by being mindful of your supply. You can plan the products you need to stock up on the most, and the ones you shouldn’t order too much of to prevent profit loss.
Manage your business’s cash flow
A booming business starts with a healthy cash flow. It is important that there is a healthy balance of money coming in and out of your business on a day to day basis. Money you can spend readily keeps the business running smoothly. But it doesn’t mean giving your customers credit is a bad thing.
Credits are still considered as sales, just keep in mind that these are delayed payments and will not reflect on your revenue in real-time. Depending on your terms, the cash from credits will come into your account weeks later, so cash reserves must be used to run the business in the meantime. If your business is still small, it’s unlikely to burn through your cash reserves but as your business expands, there will be more expenses that need to be paid.
Keep track of your liquid assets so you don’t empty your reserves. As much as possible, only use cash reserves for emergency purposes. The majority of your daily expenses should come from your liquid assets, such as cash.
Keep track of your business taxes
For a small starting business, the most important taxes you should familiarize yourself with are sales taxes and income taxes. Sales tax is present in all businesses that offer and sell products. All of your products have a set sales tax, regardless of whether you operate a physical store or an online store.
One crucial fact to be aware of is that your buyers shoulder the sales tax once they buy your products. Still, you should be knowledgeable about the local tax rates as a seller. The rates depend on where you sell your goods and any national taxation laws that may apply.
The income tax is a further tax for which you should be ready for. At the conclusion of every fiscal year, almost all firms are obliged to file their income tax return. You must file and declare all the income or compensation you received during the year and pay your taxes accordingly.
Improper filing and failure to comply will cost you penalties and unnecessary expenses. When auditors visit your company, it can also be detrimental to your brand.
Remember that documentation is essential
Big or small business, at some point in time you have to review all your records for proper auditing. Auditing will tell if all the information in your financial reports are valid, aligned, and true. These documents can give a complete picture of your business’s financial health.
However, before you start auditing, you need to have all the documents prepared. Income statements, cash flow statements, and financial reports are just some of the needed documents. Business documents are best when they are automated so you can access them anytime you need them.
Although time- and resource-consuming, physical copies are also effective. However, they’re also prone to being misplaced and can be a hassle when you need a copy immediately. Always make sure that you can access your business documents speedily.
Make plans for the future of your business
Planning using financial projections for your business is a good starting point to see which areas you need to grow. A stable revenue is good for your business, but a clearer indication of a growing business is increased sales. Consult with experts for help in generating business projections and revenue forecasts for your business.
Forecasting will also give an insight to what might happen to your business in the next few months. This way, you can prepare for any potential issues and lay out a budget to achieve the projections you create.
Get expert help
Many new business owners believe they can handle everything on their own, especially in the beginning. Keep in mind that each component of your company is of equal importance. When one falls behind, it can negatively affect your entire business.
Finances are one of the messiest aspects of owning a business. When it comes to this area, you might want to think about hiring an expert. When hiring professional help, it doesn’t mean you have to splurge. You also don’t have to hire a full-time accountant.
As your business grows and you have more resources for outsourcing people, consider letting experts manage your finances for you. Moreover, placing your finances in the hands of a professional accountant is a good start to becoming more financially efficient.
Bottom Line
Starting a business comes with many challenges, especially when everything in the business world is new to you. Learning everything there is to know about operating a business can be frightening. But taking small steps to familiarize yourself with your operations will help your success in the long run.
These are just a few of the routines you ought to adopt. You still have a long way to go to navigate business finances, but these practices will surely help build a great foundation.
