Small business accounting

I have been working with my wife’s business to get a handle on financials and her business is similar to so many other small business; the owners have a skill and know what they want to do, but don’t always understand using financial information to guide decisions. 

 

In an effort to be more helpful, I have been reading books on accounting and finance to brush up on my understanding. The good news is that the concepts are pretty straight forward, the bad news is that they are time consuming and the resources in a community may be hard to take advantage of as a small business owner with limited time and money.

 

The most important concept is making sure that the enterprise is profitable (more money coming in than going out). Keeping this principle in mind makes things a lot easier. There are various ways to make this happen such as increasing revenues, decreasing expenses, or a combination thereof. In order to make this process more manageable you have to know where your money is coming from and where it is going. Using software or reviewing your bank account weekly can help identify the trends. Once you have a process to identify this, you can start creating categories to file your revenues and expenses under. These can be rent, loan payments, customer invoices (accounts receivable), credit from suppliers (accounts payable), etc. Marking how much is brought in or paid out in each category will then improve your budgeting and decision making ability.

 

Once your system can collect the information you need, you can start to put it into action. How quickly do you collect money from customers? Immediately through point of sale or delayed through invoicing? How much time are you given to pay your bills to creditors? Immediately? 30 days? Longer? How much does it cost your business for each service or good that you sell? What is the profit margin? How many services/goods do you need to sell in order to pay your bills?

 

Taking the time to look at what your business is doing and analyze the data can be a daunting task, but the ramifications of not doing it is far worse. As a small business owner, you need to bring enough money in to pay bills and contribute to your family. Working with a professional or learning on your own to make better decisions based on the numbers is a great way to ensure long term success.

 

It can be expensive to work with certain professionals, and you may not have the cash necessary to do it, but look for other opportunities in your area; the Chamber of Commerce may offer classes or consultants that can help out for little or no charge. If there is a college, you may be able to forge a relationship with the professors to get students to help you out for class credit. Or, the bank may offer educational programs to help get you started. No matter what avenue you choose, learning to make decisions based on financial numbers and goal setting can help keep your business operational.