Josh Bauerle - Accounting For Small Businesses QuickStart Guide

Contents

Terms displayed in bold italic can be found defined in the glossary

Visit the URL below to access your free Digital Asset files that are included with the purchase of this book.

DOWNLOAD YOURS HERE:

www.clydebankmedia.com/accounting-assets

Introduction

Learning the fundamentals of accounting is like learning a new language. Becoming literate in accounting doesnt take quite as long as learning Russian, Spanish, or Chinese, but the advantages are indeed comparable.

Its safe to say that many people fear numbers I was terrible at math in school! so the word accounting calls up, for many, memories of days spent struggling over high school algebra. They prefer to leave the accounting to those who hang a CPA shingle outside their doors, confident that the professionals will do a much better job of managing their money.

But the fact remains that everyone should have a little accounting knowledge and, truly, the math involved isnt all that difficult. Nonetheless, knowing the basics, from how to balance your checkbook to learning to keep good financial records for tax purposes, goes a long way, whether youre a small business owner, investor, manager, lender, or just in charge of the household finances.

Having a clear knowledge of your businesss financial life is important. No one should be in the dark about his or her overall financial picture. Thats a disaster waiting to happen. However, with a perfunctory knowledge of basic accounting principles, including assets and liabilities, creating financial statements, budgeting, and more, youll be on the road to a healthier relationship with your money.

| 1 | The Importance of Good Accounting

There are a number of reasons to educate yourself on the particulars of accounting, some of them are quite basic but ultra-important.

Taking Control of Your Cash Flow

Small business owners tend to seek out help from accounting professionals when they notice that their businesses are having a difficult time managing cash flow, namely when they keep running out of cash, even though business seems to be moving along at a decent pace. Being able to model the businesss financial activity using some basic accounting principles goes a long way toward identifying the source of the problems at hand and coming up with solutions.

Clear Profit/Loss Statements

If youre a small business owner with a lot of cash coming in and going out, then it can be difficult to figure out how much money youre actually making. Maybe youre considering buying a new house or car, or perhaps youve got a child headed to college. Fundamental accounting knowledge allows you to create clear profit-loss statements and to readily identify the value of your equity in your business. Furthermore, accounting literacy gives your business the power of financial forecasting, with which you can make optimal decisions to keep your business profitable.

Getting a Loan for Your Business

Maybe youve got a business model thats working well and you want to expand fast before swarms of copycats beat you to the punch. Or perhaps your business isnt doing so well financially, but you can make a pretty good case that a little capital support would quickly turn things around. Banks, lenders, and investors want to see properly-prepared financial statements before deciding whether or not to let you use their hard-earned money.

Preventing Fraud

Small businesses are at a bit of disadvantage when it comes to fraud prevention. To prevent fraud, larger companies often spread accounting responsibilities out over multiple parties and even departments. In small businesses, only one person often controls the books, and the business is forced to rely on both the integrity and competency of this person, who is often not even a professional accountant, but a bookkeeper (theres a big difference). If the owner or manager of the business has a fundamental understanding of accounting principles, then theres a much better chance for sound oversight and fraud prevention. Chapter 4 talks more about fraud.

One of the common misconceptions about accounting is that its essentially the same thing as bookkeeping. In reality, accounting encompasses a much broader field of practice. Bookkeeping simply tracks the businesss financial activities. It does not incorporate the critical analyses and specialized reporting that make accounting such a powerful resource for businesses of all sizes.

The accountant takes the numbers that the bookkeeper collects and translates them into a story, which he or she then relays to the businesss decision-making executives. The accountant (usually acting in the capacity of a CFO ) is responsible for discerning how these numbers have affected and will affect the business. Not to overly-dramatize an already terribly exciting profession, but if bookkeepers and accountants were likened to CIA surveillance operatives, then the bookkeepers would be responsible for setting up the surveillance equipment and recording and logging all of the incoming information, whereas the accountants would be in charge of discerning all actionable economic intelligence and reporting their findings in such a way that the special agents would know precisely where, when, and how to take action. Accountants are strategists, interpreters, and storytellers, responsible for relaying information from the world of numbers to the world of business.

| 2 | Balancing Your Checkbook

Good accounting starts with the most basic of tasks, such as learning to properly balance your checkbook. This might seem like a given, but there are people (and businesses) who struggle with this each and every month and never seem to get it right. The result, unfortunately, is often a chronically unbalanced account that gets worse and worse each month. But it doesnt have to be that way if you invest a little time in this task.

Reviewing Your Bank Statement

So, your monthly bank statement has arrived and its time to reconcile it. Here are a few simple steps to help you do this with ease:

Record Your Income & Transactions

Banks dont return canceled checks anymore, but they do provide digital images of those checks once theyve cleared. Sit down with your statement and match each of those checks to the entries in your checkbook. Match check numbers as well as the amounts of the checks. Mark off each one youve matched. Note that when you pay bills electronically, banks do not include digital images of these e-checks along with your other checks

Verify Any Automatic Debits

Many people pay their insurance via a monthly withdrawal (debit) thats made by the vendor. Hopefully, youve allowed for these and have kept enough money in your account to cover them! Verify the amount deducted and where it was sent, just to be sure no changes were made since you first set up these payment plans.

Check Your Deposits

Hopefully, youve kept deposit receipts or have carefully entered them into your checkbook ledger. Check the amounts and dates. Remember, electronic deposits perhaps paid to you by a customer or client may take a few days to clear, so if theyre made near the end of the month, they may appear on the next months statement instead.