If you've recently joined the ranks of small business entrepreneurs, you're likely excited (and perhaps a bit nervous) about the future that awaits you. Even if you're running your business on a shoestring budget while you try to build your customer base, it's important not to skimp when it comes to your accounting department. Failure to keep adequate records could not only cost you in lost tax deductions, it could land you in hot water if you find yourself without adequate cash reserves to pay your staff (or your suppliers) on a timely basis. Read on for three basics of small business accounting you can't ignore.
Keeping Track of Accounts Receivable
Unless you deal entirely in on-the-spot transactions with both customers and vendors, your accounts receivable (A/R) can be one of the most important measures you track. A/R serves as an indication of the goods or services you've supplied to others for which you haven't yet received payment. If you're not closely tracking your A/R, you could find that some customers or suppliers are walking away with your product or services and providing you nothing to show for it, which can be a death knell for a rising business.
Having a Plan for Cash
Few things can be more dangerous for a business's financial viability than untracked cash. Even your business's "petty cash" should be carefully monitored and logged to ensure it's always accounted for and replenished if necessary. Not only can "mystery cash" draw the attention of the IRS during an audit, it can be a target for unscrupulous employees who believe they can shave a bit of money off the top of each transaction without it being noticed.
And if keeping your business afloat is taking a toll on your personal finances, it can be tempting to "borrow" some funds from the business to pay your mortgage or electrical bill. Commingling your business and personal finances in this manner can be problematic and may wind up sinking your business before it has a chance.
Monitoring your Accounts Payable
Just as failing to keep a handle on your A/R can mean you're giving away money, losing track of your accounts payable (or the money your business owes to vendors, landlords, utility providers, and others) could lead to unpaid debts or even a civil collection or small claims lawsuit. It can be tough to remember all the moving parts in any business, especially when you're also juggling personal expenses, so hiring an employee (or utilizing a software program) to monitor your accounts payable is crucial to ensure no bill goes unpaid.
To learn more, contact a company like Universal Accounting and Financial Services, Inc.