Small businesses are the backbone of the American economy. They create two out of every three new jobs in the country and account for more than half of all private-sector jobs. But as any small business owner will tell you, keeping your business afloat is a constant challenge.
One vital way to stay on top of things is to have a basic understanding of principles of accounting for small business owners. Here are nine simple steps every small business owner should understand to keep their business on track financially.
Keep Track of Your Expenses
This may seem like a no-brainer, but it’s essential to have a record of all your business expenses, even the small ones. Keeping track of your spending will help you stay within budget and make tax time a little less painful. Additionally, knowing your spending patterns can help you identify areas to cut costs and improve your bottom line.
The best way to track expenses is to use a good accounting software program or even a simple spreadsheet. Finally, keep receipts and invoices for all your business expenses, and always double-check the amounts against your bank statements.
Track Your Sales
Just as important as tracking your expenses is keeping tabs on your sales revenues. It will help you determine whether you’re making progress towards your goals and give you an idea of where to focus your marketing efforts.
There are several ways to track sales, from simple spreadsheet formulas to more sophisticated customer relationship management software. The important thing is to find a system that works for you and stick with it. Sales tracking will help you make informed decisions about your business and keep you on track to meet your goals.
Create a Budget
Budgeting may not be the most exciting task, but it’s essential for every small business owner. Creating a budget will help you keep track of your expenses and income and help you make informed decisions about where to allocate your resources. There are many different ways to create a budget, so find one that fits your business’ needs. Make sure you budget for all business expenses, including:
- Rent or mortgage
Figure Out Your Tax Obligations
One of the many challenges of owning a small business is dealing with tax paperwork. It’s essential to understand the different types of taxes you may be liable for and keep track of the various deductions and credits available.
The good news is there are plenty of resources available to help you, including tax preparation software and online tutorials. This step can be daunting, but it’s essential to get it done right so you don’t end up with a hefty bill from the IRS.
Keep an Eye on Your Cash Flow
Cash flow is one of the essential factors in the success of any small business. Therefore, it’s necessary to understand how much cash you have coming in and going out so you can make informed decisions about how to grow your business. There are various tools and techniques you can use to track your cash flow, from simple spreadsheets to more sophisticated financial management software.
You can use a cash flow statement to show how much cash is coming in and out of your business over a specific period. It is essential information to have when making financial decisions about your business.
Set Goals and Track Progress
One of the best ways to stay on track financially is to set goals and track your progress towards them. It will help you stay focused and motivated and give you a sense of accomplishment as you reach each milestone. There are many different types of business goals, so find ones that fit your company’s needs and aspirations. Some examples of business goals include:
- Increasing sales
- Reducing expenses
- Expanding into new markets
- Improving profitability
Get Professional Help
If you’re feeling overwhelmed by the task of managing your business finances, don’t be afraid to get professional help. There are plenty of accounting firms and financial advisors who can help you get your business back on track. Don’t be scared to ask around or do some research to find a qualified advisor who fits your needs and budget. The price you pay for professional help is worth it if it means you can avoid costly mistakes and keep your business on track financially.
Re-evaluate and Reassess
The best way to stay on top of your business finances is to be proactive and constantly re-evaluate and reassess your situation. This means taking a close look at your spending and sales patterns, your budget and tax obligations, and your overall cash flow. If something isn’t working, don’t be afraid to make changes.
The key is to be flexible and adaptable to respond quickly to any financial challenges that come up. Of course, it’s best to conduct a regular financial review at least once a year. Still, you may need to do it more frequently if your business is experiencing financial difficulties or significant changes in your market or industry.
One of the best ways to stay on top of your finances is to be organized. This means having a system for tracking your expenses and income, as well as all your tax paperwork. It also means keeping a close eye on your bank statements and credit card bills and making sure you understand what each number represents.
If you’re not good at organizing things, plenty of tools and software are available to help you, including financial management software and online budgeting tools.
Having a solid understanding of the basics of small business accounting is crucial for owners and managers of small businesses. By following a few simple steps, you can get your business back on track and ensure that your finances are in order.
Stay organized, keep accurate records, and consult with an accountant when needed. These tips will help you maintain control over your business’s financial health. In addition, it will give you peace of mind, knowing that your business is on sound footing and ready for whatever challenges come its way.