Every other aspect of your business can be organized and efficient, but if you neglect your financials, you are doing your business a certain disservice. To be able to have data, and inventory, your have to know where you stand with costs and sales. Don’t worry, accounting can be a bit confusing if you’re doing it yourself.
When we say accounting, we’re essentially talking about keeping a complete record of your business’s finances. Whenever a question or concern about money comes up, you should have this resource within arm’s reach.
If you’re not yet keeping financial records, start by getting organized. Whether you’re using accounting software or paper, get all your transactions recorded in a logical fashion. Then get into the habit of regularly updating your records as new transactions occur.
The purpose of accounting is to give yourself the ability to easily track and understand your finances. Curious what your revenue was from May to August? That shouldn’t take long to figure out. Wondering how much you spent on utilities last winter? Add up the amounts you have recorded. Need to figure out if you can afford another employee? Better dive into the books and crunch some numbers.
Savvy business owners don’t make decisions without considering the financial impact. Consulting your accounting records can help you decide on the best action to take.
One of the best indicators of a company's financial health is its cash flow – the money that comes in as revenue and leaves in the form of expenses.
When you a run a business, there might be times when you’re owed funds (revenue) that haven’t been received – or conversely – have a pile of bills that that you haven’t had the chance to take care of (expenses). Accounting for these transactions, even before the money is received or paid, gives you a more accurate view of where you stand financially. It’s easy to check your bank account and see that you have about $10,000 on hand. But if you owe a quarter of that in bills – then you really only have $7,500. The difference might be significant enough to decide against buying more inventory or running a sale.
The best way stay on top of your cashflow is to update your accounting records as often as possible. In doing so, you’ll likely uncover inefficiencies and identify ways to improve you business operations.
In addition to noting each new transaction as they occur, you should also make sure you record when the funds have been received or paid. Your goal is to make sure your accounting records match up with your bank statement – a process known as reconciliation.
When a transaction is recorded in both your accounting records and on your bank statement, you can mark it as reconciled. It means the funds have been paid out or received and the transaction is settled.
Reconciliation is important to keeping your accounting records accurate and current. It also helps you notice any discrepancies. If you forget to record a transaction or record it incorrectly, you’ll realize it when it comes time to reconcile your books
As a retail business owner, you collect taxes on each sale and pass the funds to your state tax agency each month or quarter. That means there are long stretches of time when you’re holding onto money that isn’t actually yours. It’s crucial that you accurately track what you’ve collected and owe so there aren’t any surprises when it comes time to pay the government.
It’s also important that you fully understand your tax obligations and collect the right amounts. You need to comply with all state and county tax laws where you do business. If you run an ecommerce business and ship to different states, taxes get even more complicated. Be sure you take the time to familiarize yourself with the laws that apply to you.
Let’s face it, accounting is complicated and time consuming. And though it’s essential to running a business, you just may not have the time.
Hiring professionals – such as an accountant or bookkeeper – can be highly beneficial. They can assume the vital responsibility so you can spend more time focusing on your core business. You can rest assured that a trained professional is handling your financial recordkeeping, while you devote your time and energy to what you know best.
Even more importantly, you can leverage your accounting professional’s expertise and experience. Most are experts in tax laws and can ensure you're fully compliant. An accountant or bookkeeper can also dive deep into your financial records and advise you on how to better run your business. They work with a lot of different businesses and have seen what works and what doesn’t.