Small Business

5 Things Every Small Business Owner Needs to Know About Accounting

When you’re starting a small business, you’re gonna build it on your own sweat and blood. If you have decided to do it, that means you’re hardworking, resilient and passionate. You have a lot of positive energy that you’re gonna use to create a profitable and sustainable business. But what most small business owners don’t have is an accounting knowledge.

We have to be honest – that part is not exciting as such, and we would all rather have someone else do the job. But in the beginning, you might not be able to afford an experienced accountant or you might want to try it for yourself first. You can’t keep track of your company’s finance only through your bank account.

Accounting is the core of every business so you need to gain basing knowledge on the subject.

1. Detecting the errors before it’s too late

Understanding how accounting works simply means understanding your financial records. Things like profit/loss statement or balance sheet will clearly point out whether your company is profitable and they will show you how much is it worth precisely. If you are familiar with this you will be able to adjust or correct any financial errors on time. Otherwise, you’ll just have to wait to receive your tax return and then it might be too late to save your business.

2. Making wise decisions

We all know how hard it is to correctly price all the goods in our company. Not to talk about how hard is to decide whether to expand or not. Usually, we compare the cost of the goods and their sales so we can estimate the profit. It seems pretty easy, but then why we make mistakes so often? Because we haven’t considered many liabilities that are tied to the company, and that is one more thing we need accounting for. We need it to keep track of the money we own through the loans, salaries of our employees, depreciation of the equipment and other things that include expenses.  When we have all this data clear in front of our eyes, we can make wiser decisions that will secure the future of our company.

3. Earning credibility

The informations that accounting provides are not just for us, they are also important for the others. Every small business needs a loan from time to time, and bankers will need your clear financial records in order to determine the risk they will take if they decide to give you that loan. So approval or denial depends on your accounting, and so does the amount of credit you’re gonna get. Clean records give you credibility and show that you’re a serious person that can be trusted.

4. Life monitor

We all need medical check-ups from time to time, and so does your company. Think of it as a living organism – the cash flow is like a blood in its arteries that keeps it alive. Accounting is like a life monitor that follows all the money that enters and exits your company. If you don’t monitor this area correctly your company could lose too much ‛blood’ and no doctor can reanimate the dead.

5. How to gain this knowledge?

First, don’t try to find do-it-yourself advice on the internet. There are various classes for accounting, but if you’re gonna spend your money, it’s always better to learn from people that are still in the business.  But don’t throw your money on the first accountant you see. Real professionals like guys from Ultimo Office know that every first consultation is for free. So first you’re gonna hear what they have to say before you decide your next step. You can also purchase an accounting software but first, make sure you have enough knowledge to use it.

Remember, you can hire a professional accountant, but you still need to have a basic knowledge yourself. Accounting is a department of your company like any other and not knowing how it will badly affect the rest of them.

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Cate is an IT girl by day and a writer by night. Her fields of expertise could be summed up to web design and digital marketing. Her interests are, on the other hand, wide and ever-evolving. These days Cate is quite obsessed with the latest innovations and trends from the tech world.

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