Learn about business accounting methods.
If you want to succeed in business, you need to know about financial management. No matter how skilled you are at creating a product, providing a service, or marketing your wares, the money you earn will slip between your fingers if you don't know how to efficiently collect it, keep track of it, save it and spend or invest it wisely.
Poor financial management is one of the leading reasons that businesses fail. In many cases, failure could have been avoided if the owners had applied sound financial principles to all their dealings and decisions. Financial management is not something that you can leave to your banker, financial planner or accountant—you need to understand the basic principles yourself and use them on a daily basis, even if you plan to leave the more complicated work to hired professionals.
To succeed in business, one of your most important tools is financial analysis, based on your business records. Accurate financial records will help you answer some very important questions, such as:
A sound bookkeeping system is the foundation on which all of this valuable financial information can be built.
As a small business owner, you probably rely on an outside accountant to do your taxes and prepare financial statements. However, like many small business owners, you may find that it's too expensive to pay an accountant to do routine bookkeeping chores. Someone in your organization—probably you—must take on the responsibility of keeping an accurate set of financial records. Fortunately bookkeeping software makes this task easier than you might have thought.
Nevertheless, finding the right accountant is an essential element of monitoring and managing the financial well-being of your business. Having an expert third-party review your records means you'll be alerted to problems with your recordkeeping methodology or just plain computational errors. Better to have your accountant tell you this, rather than the IRS.
Unless your business is accounting or bookkeeping, keeping financial records is probably not what you do best. Most likely, you'd rather spend your time selling your product or service. However, if you are going to run a successful business, accurate and timely financial information is a must. Here are some of the reasons why you need a good financial recordkeeping system:
In most cases, with a little study and familiarization with your bookkeeping software, you should be able to manage your most basic financial records without the help of an accountant. This includes the daily recording of transactions, maintenance of a general ledger, and maintenance of your cash records. There are some other records you may need to maintain, depending on your business, such as accounts receivable ledgers and accounts payable ledgers.
You may need an accountant to help with less routine tasks, such as preparing periodic adjusting entries, financial statements, closing entries and income tax returns, or helping you prepare a budget. You may also decide to have your accountant set up your books when you first open your business. It helps to find an accountant who's familiar with, and a fan of, the software you prefer.
If you've been in business for a while, your accountant could give your bookkeeping procedures and records a one-time or periodic checkup.
If you are using an outside accountant, how often will you need his or her services?
At a minimum, you will need your accountant to help you close the books annually because you have to file an income tax return every year. If you are having financial statements prepared, you will want them done at least annually. However, annual financial statements may not be enough to help you keep tabs on your business. You may want financial statements every quarter, or even monthly.
Depending on the size of your business, you may want to have your accountant close the books every month, particularly if you need to submit monthly sales tax to the state.
If you don't have an accountant, you should shop around for one just as you would for any other service provider. Talk with your peers in the business community about their accountant. Interview several candidates. And ask yourself the following:
Some accountants seek a professional designation to set themselves apart from others. Certified Public Accountants have attained the "CPA" title by passing a rigorous examination covering accounting, business law, auditing and taxes.
A CPA is required to have a college degree (or a high level of work experience), and must meet an annual continuing education requirement. The CPA license is administered in every state by some type of state licensing board. A CPA must abide by a code of professional ethics as administered by a state board of accountancy.
Many small business owners are more comfortable choosing a CPA as their accountant because, as a rule, they feel it assures them a high level of professional competence. Some non-CPA professionals may not always have as broad an education as a CPA, but a given individual might have the perfect accounting and tax expertise for your business.
Don't wait for an upcoming deadline to begin looking for an accountant. Try to do it well in advance of your need for his or her services. Also, the worst time to shop for an accountant is during the "busy season" (January through April). Accountants generally don't have time for "interviews" during that time of year.
You can save yourself some cash by doing as much of your own bookkeeping as possible. Your accountant would prefer that you not drop a shoe box full of receipts and records in his or her office. Such a strategy will cost you a lot of money in accounting fees; you don't want to pay your accountant for routine clerical work.
You should be able to keep track of the day-to-day transactions, and have a preliminary general ledger ready for your accountant. If you keep good records, your accountant will produce more accurate financial statements and/or tax returns, and will do it faster and cheaper.
Get your records ready and set up an appointment with your accountant as early as you can. Don't wait until you are close to an upcoming deadline. If you get your records to your accountant early, he or she will give you better service for your money. Too many people wait until the last minute—don't be one of them!
We can't stress this enough: Bookkeeping and accounting software is much better than your homemade spreadsheets (or your print notebooks). Shop around. Some options are more sophisticated than others, and some are written specifically for certain industries, such as retail, construction, or service-oriented organizations. But don't be swayed by fancy packaging—many software packages "tailored" to your industry are the same product as any other "tailored" software, just with different packaging and a few minor changes.
Always discuss the selection of computer software with your accountant. Your accountant may want you to use a program that is compatible with the system he or she uses. In many cases, you may be able to keep most of your records on your computer, and simply transfer the files to your accountant, never having to leave your office.
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