The fundamentals of accounting
Running an effective small business includes several different financial components, one of which is smart accounting. Accounting is broken down into managerial accounting where you make the decisions as to what you would like to do with your money and also into financial accounting, where you control the books for the company.
What does smart accounting refer to?
As you are already aware, accounting controls your books to make sure the business is running accordingly and you are not running into financial problems. Accounting allows you to control your payroll along with cash flow, balance sheets, and your profit and loss statement. It helps you pay your bills on time and to make sure you are getting all of your payments on time.
Running a small business can become overwhelming and if you are not actively keeping your books in order, you can lose track of your day-to-day expenses and it will lead to serious financial problems. If you leave your books unattended, you might also run into tax issues along with bankruptcy.
What is the balance sheet?
The most important financial document you will deal with is your balance sheet. A balance sheet is statement of your assets and liabilities and your equity. The balance sheet is often used by lenders to determine your small businesses' worthiness to receive a loan. To receive money from banks or other lenders, you will need to provide them with about 3 years of balance sheets so they can get a good understanding as to how you run your business. Once your business is large enough, investors will ask for balance sheets so they can determine the worthiness of your stock. It's a simple way to decide if you'd like to become part of that company or not and if they are going to help you investments grow.
What is my cash flow?
Your cash flow statement is very important to the day-to-day operating of your business. The cash flow statement provides detailed information of the cash that is coming and out of your business. The cash flow is the lifeblood of your organization. If you aren't keeping an eye on it at all times, you can quickly lose your business. Cash flow statements allow you to see how much money you can afford to invest in raw goods and other things and how much money your customers owe you. Bumping up your pay dates from your customers is a great way to keep your cash flow thriving properly. Another way to help your cash flow is to talk to your vendors and ask them for an extension for your pay dates as you wait for your customers to pay you so your account isn't completely drained.
The profit and loss statement
As you already know, accounting covers a lot of different financial aspects of the organization. Your profit and loss statement is another important statement you need to manage properly in order to keep the business thriving and growing. The profit and loss statement provides information about the income your business makes and how much money you have lost during a certain time period. This is how you can judge how well your marketing and advertising campaigns worked along with where you are wasting company funds.
If you know you don't have the financial skills to keep your business running properly, hire someone that does. You need to find a person that you can trust who will be able to manage everything and keep you well informed with your accounts. You can help them do their job easier by purchasing good accounting software. Small businesses often gravitate toward QuickBooks as it is user friendly and you can have multiple users so different employees can get the statements they need.