If you run a small business, you need to know a thing or two about accounting. But the problem is, youve got a million other things to worry about throughout your day. Understanding the nuances of ledgers isnt high on your agenda. Unfortunately, not knowing the basics of accounting can lose you money and land your business in trouble. So here are some quick and easy-to-learn things that you need to know about accounting today.
You need to decide how often you do your bookkeeping. Most firms do their bookkeeping around once per week. This is so that they minimise the amount of time they spend scrambling around for receipts and recording payments. If you outsource to chartered accountants, it also makes sure they an accurate record of your accounts.
The State Of Your Accounts
Many business owners dont take responsibility for reviewing their statements themselves. Rather, they pass the task off to somebody else and assume that they will deal with it. But this is where problems can start to arise. The first issue is that the person who deals with your accounts might not be trustworthy. They might, for example, embezzle money, knowing full well that you dont check the books.
As a business owner, you shouldnt be in the dark about any aspect of your business. So that means that you should regularly review the books and ask questions if you see anything unusual. Youll also get a better picture of how the business is performing overall. And this will inform your strategy for the future.
Your Seasonal Cash Flow
The amount of money you business has on hand at any one moment will vary from month to month. Sometimes this variation is unplanned. But in a lot of firms, it is to be expected. If you run an ice cream truck, for example, you expect to do a lot more business in the summer than in the winter. And so your seasonal cash flow will change. Some months youll have a lot of revenue relative to outgoings. Other months youll have far less. When you are cash-rich or cash-poor will inform many decisions you make in your company. Going on a marketing spree when during peak season is probably a good idea. Doing so in the low-season probably isnt.
Your Tax Liability
The amount of tax that you pay as a business will depend on your jurisdiction. If youre lucky, this will be simple. But in most countries, tax liability is not something easily worked out. There are numerous deductions, different rates of VAT and rules about when corporation tax should be paid. In some countries, your tax liability can even vary by industry, adding another layer of complexity.
As a business owner, you need to have a good idea about what taxes you need to pay. This is where talking to a professional can help. Paying too much is bad news because it means that your company is losing money unnecessarily. And paying too little is bad news because it puts you at risk of fines.