Why You Need Basic Accounting for Your Business

Starting a business is hard work. More than the sheer passion to put up what you love to do out in the market, it requires a lot of determination, research, and capital. Managing the capital also means knowing more about your small business accounting.

Accounting is one of the most important aspects of a business and without it, your business will simply not survive. Accounting for your business start up means having a solid record of your business’s financial activities. It involves writing, recording, and analyzing the money that goes in and out for your business operations, the profit, and the losses. 

Even the smallest business needs a systematic accounting tool to be able to identify areas for growth, change, or improvement. Whether you choose to do it yourself using an online accounting software tool or hire an accountant, knowing the basics of accounting can make such a huge difference. 

Benefits of accounting for business start up 

If you are a small business owner, the idea to start might have stemmed from your hobby or passion. When you start small, it is easy to monitor how the money flows in and out of the business. Having a proper bookkeeping system means that you are on the right track and as your business grows, your records will serve as a guide in modifying and updating your business strategies, particularly the financial aspects.

A basic accounting system can result in a lot of benefits, including a huge return on investment. Below are some benefits of accounting for a business start up. Knowing basic accounting for your business 

It helps with budget expenses. Having a basic accounting set-up for your start up helps you a lot in setting up a budget for the many different aspects of your business. This will help you budget and monitor the cost of your marketing and advertising strategies, your business inventories, and the salary of your employees. 

It helps monitor business performance and gives financial estimates. As your small business begins its operations, you need to record all kinds of transactions. This will eventually give you an idea of how your capital or the money invested in your business is being used. This, in turn, can help you evaluate your business performance and your financial expectations. 

It helps determine if the business is profitable. A monthly financial statement including a balance sheet and income statement will help you see upfront if your business is profitable or not.  You will be able to see and identify how long your resources are going and the rate of your expenses. You may also be able to identify problems, helping you to make adjustments early on your business plan. 

Financial records can officially be used to relay information to banks, investors, suppliers, and more. Having a complete and readily available record of your financial operations is not only great. It would be a great help once you need financial statements from other institutions like banks or when you are being audited. Your financial information is also the key to retain your current investors and attract new and interested ones. This process can save you a lot of time and money in your operations. 

Information obtained from bookkeeping can be used to evaluate further business opportunities. A basic accounting system can help you in analyzing the company’s financial strength and weaknesses and this can be a very good basis for business evaluation. When you are confident with your financial records, you may be able to solve underlying issues quickly or open up other opportunities for your business. A record with a good and clear overview of profit and loss is your ultimate tool to do just that. 

Basic accounting for your business

It can be very challenging to begin the process of accounting for a business start up. Having a basic accounting checklist to follow can is helpful especially in the beginning, when you are not yet considering hiring an accountant but is keen on having a proper bookkeeping system to record your financial activities. Below are some of the things that might be helpful to include in your checklist. 

  • Having a separate bank account for your business.
  • Tracking your regular expenses and keeping a record of your invoices, receipts, tax returns (if there are any), and other financial statements. 
  • A simple yet well-organized booking system that includes the following: accounts payable, accounts receivable, inventories, loans, purchases, payroll expenses, and owner’s equity. 
  • Knowing the tax obligations of your business

As the business grows, the accounting system will also grow. It will also become more complex than you may consider hiring an accountant and a bookkeeper. Starting with an organized system helps a lot of business owners especially when the business booms. 

Today, there are many accounting software or bookkeeping systems available online that are very easy to understand. Starting with these can help a lot as well. 

Parting words

New business owners often think that accounting is difficult because of the process involved. But when you get to understand it better, it is not as difficult as it appears to be. 

Accounting and business go together hand in hand. Without having a proper accounting system, the business will fail. Knowing basic accounting is very important in helping you evaluate your business.  Accounting will also help businesses to evaluate their profitability. Having a record complete with all the financial dealings of the business including accounts payable and receivable, inventories, payroll, and other expenses readily available is also beneficial if you are working with investors or you want to expand the business and explore other opportunities.

If you are starting a business and interested to learn about the basics of accounting, there are many resources online that may help. You may also take up a quick online course about the subject.

Accounting is also extra helpful if you are a start up business owner. The records will show you clearly and upfront where your business is heading and what you need to do to make it work. 

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