Learn the secrets to starting a business: Click Here to Get Started
Money is the lifeblood of your business. At the end of the day your business will go under if it is not generating money. No matter the size of your business, learning how to do business accounting is a basic skill to learn while building the foundations of your business.
If you aren't on top of exactly where your money is going, your bills at the end of the month will come to surprise you. Don't your business survival be threatened by accounting mistakes. Let's go over the basics on how to do basic accounting for small business. These will help get you started. Let's dive in!
Analyze Financial Transactions
We live in a fantastic day and age with wonderful tools to help us do the dirty work. Getting down-and-dirty with financial stuff is hard work, but is rewarding when you begin to see the benefits of it. When running the finances of your business, ensure you aren't running your business from "the rearview mirror". In other words, be proactive about tracking expenses as they come. Don't wait till a preset date at the end of the month.
This is where tools come in. Mint™ from Intuit TurboTax is a fantastic tool I personally use to track my personal finances. The nice thing about Mint is how it categorizes all of your transactions for you, sends you alerts when you have overgone a certain budget, and compares your current spending habits with your historical spending habits. And most of all, it's free! This is more for personal use, however the first step in doing accounting for a small business is first doing good accounting for yourself.
When it comes to running a business though, there are some very practical tools that Mint™ does not offer. When it comes to business finances another great tool is Quickbooks™, also by Intuit. Though not free, they have numerous pricing plans where you can find whichever one fits you the best.
Quickbooks offers many tools that help automate practical financial practices. Not to mention, the layout of Quickbooks is just very tidy and elegant. The dashboard of Quickbooks presents all your transactions at a glance for easy to view, quick summary. Furthermore, Quickbooks gives you the ability to send invoices directly from the app, track various expenses, and sorts the expenses as well. The sorting feature of Quickbooks is great to ensure you don't miss potential tax deductions!
All in all, you just want to make sure you are on top of, on a daily basis, the money flow in your business.
No, sorry, this isn't the nice journal entry you write to get your thoughts on paper. This is the business type of journal entry. When learning how to do basic accounting for small business know the purpose of the journal entry is to keep a record of all business transactions. This is also another thing that can help save you lots of money during tax season. Having proof of various purchases allows you to take more accurate tax deductions.
The typical journal entry is created with three rows as seen below:
As you can see, the entry consists of three columns, the Account, Debit, and Credit. The Account column is simply to track the account name and number the transaction happened under. So, what's the difference between debit and credit. Simply put, a debit entry adds a positive number. A credit entry is a negative number. When creating the journal entry, note the debit column should equal the credit column.
When any purchase or financial history of your business is questioned, always have the journal entry available. The journal entry is a powerful tool when doing accounting for a small business, and is meant to be a very detailed expense sheet for your business, where typically each journal is designated for a specific type of transaction (sales, cash receipts, etc...)
Similarly, the general ledger is more-or-less a summary of the journal entries. Due to the rise in automated tools (like Quickbooks) the Journal entry is starting to become less and less common. The general ledger seems to be taking its place. Nowadays many small businesses only use the general ledger.
When learning how to do accounting for small business, keep in mind a general ledger is setup much like a journal entry. It has three columns: Account name, Increase by, Decrease by. Without a general ledger, a businesses financial books can become quite sloppy. Furthermore, the general ledger will also help prepare for an audit and can make applying for a small business loan much easier.
Catch you on the flip,
P.S. If you are wanting to, or have ever wanted to start a business, but are lost on where to start, click here and check this out