Call it what you will ... keeping the books, financial management, accounting, doing your taxes, crunching the numbers and on and on ...
Many have called it names that I won't repeat here!
No business activity strikes fear or disdain in the hearts of small business owners like this one!
If you're going to be in business, you must accept the duty and responsibility of doing financial management - it "goes with the territory!"
Of course, some will have the means to outsource as many accounting functions as possible. Doing so may be the best alternative for solo business owners that are not adept at tracking and recording details.
However, even if outsourced, accounting requires the discipline of keeping and recording income and expenses on a daily basis ... not something that many folks are used to doing in their civilian lives.
Remember, just because you want to be a small business owner, you may not have the skills or mindset to be good at this aspect of business right out of the gate.
You may have to undertake a change of attitude or habit in order to internalize what you need to be doing as a business owner.
"It took me a while to learn it, but you really have to run a business by the numbers." Such statements by new business owners are common and they acknowledge the learning process that must take place for your business to flourish.
It's impossible to run a business by the numbers without implementing an adequate
accounting system as one of your management tools.
Doing business with incomplete records is one of the most serious errors a small business owner can make.
Very few business owners actually enjoy the number crunching segment of running a business, but if you keep your system simple, it can be done with a minimum of headaches and wasted energy.
Accurate and complete financial records will help you track the growth of your business and assist you in making plans for the future.
According to the SBA (Small Business Administration):
"Your books should include accurate and thorough statements of sales and operating results, fixed and variable costs, profit and loss, inventory levels, and credit and collection totals; tax returns and reports to regulatory agencies; and comparisons of current data with prior years' operating results and budgeted goals.
In addition, you should also track daily cash receipts and credit sales, expenses and inventory received, plus employee expenses including pay and deductions.
A good record keeping system should be easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.
There are two methods of accounting: cash and accrual. Using the cash method, income is recorded when the cash is received and expenses are recorded when paid.
With accrual accounting, you record all income and expenses whether paid or not. Both cash and credit transactions are recorded when paid.
Whether you use the cash or accrual method, both require four basic types of records:
- Sales records;
- Cash records;
- Cash disbursements;
- Accounts receivable."
To determine which bookkeeping system is best for you, I would suggest consulting with a business financial adviser or certified public accountant.
Accounting is one of those areas of your solo business that you must not ignore. And if you wait to address your financial details for the year until just prior to tax time, you will make your life much, much more difficult than it needs to be!
