Businesses rely on accounting techniques to keep track of cash flow, plan future capital investments, and prepare for quarterly tax receipts. A lack of formal training causes added stress for owners and introduces unnecessary risks of failure.
Basic accounting tools provide a regularly updated view of the financial health of your business, so you can respond quickly to emerging threats. Every small business owner can use these tools without a degree in accounting. Those with special applications or problems also have options. Take a look at the organizing principles of accounting and the best practices in the modern business world.
Accurate financial tracking is surprisingly easy to start with the following three steps. Once you know these by heart, it then becomes a matter of learning different methods of manipulating the information for concise understanding.
Document Cash Flow
Original paperwork for all sales and purchases should be kept in one safe place. Expenses are often simplified by use of a business credit card for all purchases. Be sure to also document the amounts paid from the business to you and any other employees. Income should be tracked separately from the bank statement. You need to know the exact source of each dollar as will be apparent in a moment.
Summarize Cash Flow
Documented cash flow can be entered into the general ledger or accounting software on a monthly or weekly basis. A daily entry of cash flow is sometimes useful. You will have to decide a time frame, but do not put this task off too long.
Report Cash Flow
Summaries are the basis for reports. With complete information, reports show the strengths and weaknesses of your business over time. They are extremely helpful for finding extra money and planning capital investments.
Two Accounting Methods
Cash basis and accrual accounting are your options for summarizing cash flow. Cash basis accounting enters in purchases and income before any transaction has taken place. It can be misleading in case of customer non-payment or vendor changes, but it is a good planning tool. Accrual accounting enters information after the transaction. It is the most accurate method for small business, but you will need to create projected budgets separately based off reports.
Several documents should be maintained for accuracy. These include:
A general ledger tracking all income and expenses.
Accounts Payable and Receivable for projected transactions when using accrual method
Balance sheets presenting financial summary by the quarter, month, and/or week.
Most small business owners handle accounting themselves. However, it can quickly become complicated, and there isn't always time to track information on the needed bases. A professional accountant can provide part-time assistance with your bookkeeping and tax advice. Hiring an accountant, even if only for part-time work, can be a smart business move, as it ensure the job gets done well and it removes the stress from you.