From the course: Small Business Secrets

Understanding small business accounting

From the course: Small Business Secrets

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Understanding small business accounting

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When I say the word, accounting, what's your reaction? Well, odds are, unless you are an accountant or a bookkeeper, you're not very excited to hear that word. Because of that reason, accounting can be a blind spot for many small business owners. Unfortunately, it's something that deserves your attention, and we do need to spend some time working on. First of all, let me define what I mean by accounting. Accounting in its simplest sense, is the recording and reporting of financial data. There are two areas in which we can use this recording and reporting. First of all is for taxes. We need to report to the government how much we made, so that we can determine what we owe. The second area though, is often overlooked, and that's strategic. That's where we're reporting to ourselves, to make strategic decisions, about what we're going to do with the business, in the future. Now, whether we're talking about the tax side or the strategy side, we want to devote some attention to making sure that our accounting is accurate, and up to date. Here are four areas, and four tips that you can use, to stay on top of your accounting. Number one, is to choose an accounting program. I'm referring to a software recording program. Choose some software program that you're comfortable, committing to, using, and recording into, on a regular basis. It really doesn't matter which one you use, but if you're on the fence, I recommend asking your accountant. Typically they have a preference that they like their clients to use. Number two is, we must track all incoming and outgoing transactions. That means, any kind of expense that we have, any kind of income that we have, we must put into that accounting program. Now, this one thing is one of the least attractive responsibilities that small business owners may face. For most business owners, this just sucks the life out of you. If that's the case, I recommend this is one of the first things that you delegate to someone else. Either hire a bookkeeping company, an accounting firm, or just find some person you can delegate this to, so that they are the ones making all of those transactions enter the accounting program. And number three is filing tax returns. How often you need to file returns, depends on the size of your business, and the industry that you're in. It's a good thing to ask your accountant, how often you should do this. As a general rule of thumb, though, the bigger your business becomes, the more often you'll need to file. And finally, number four is generating financial reports. There are two reports in particular, that you'll want to generate as a business owner. A profit and loss statement, sometimes called an income statement. And your balance sheet. At minimum, I recommend that you generate these reports on a quarterly basis. This will begin you on that process of becoming more strategic, when it comes to your accounting. Accounting may not be the most attractive thing when it comes to small business. But it is a necessary thing, and, if done properly, can be a powerful tool, to help your small business succeed.

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