Sports fans are familiar with terms like off-season, regular season, and playoffs. They know professionals work year-round to stay at the top of their game, utilizing the most recent nutrition and conditioning advice and listening to their coaches to be as successful as possible. Small business accounting, while not nearly as entertaining, is certainly similar.
Learning the Game: Fundamentals of Small Business Accounting
What is included in small business accounting?
The crux of small business accounting is tracking all income and expenses to tell the financial history of your company. It also includes managing payroll and taxes to keep your employees and the government happy.
Don’t forget the reason you go to all this work: financial success doing something you love. Small business accounting includes planning for financial returns and growth.
It’s the law. The IRS and most state governments require you to file a variety of income tax, payroll tax, and sales tax returns. You need accurate accounting records to report in a timely manner.
Better business performance is another motivating factor. Just like statistics can show a player’s shooting percentage in basketball, number of home runs in baseball, or the score in a football game, small business accounting helps you see what’s happened in your business and adjust.
Small business accounting also leads to greater peace of mind. Fear of failure, or IRS audit, is greatly reduced when you know your records are up to date and you’re doing well.
What should your team look like?
Unless you’re going solo, you need a team to whom you can delegate your small business accounting tasks.
Clerk/Bookkeeper: Focused on clerical tasks, invoicing, bill pay, customer service, and more.
Accountant: Focused on accounting software and procedures, including bank reconciliations, accounts receivable, accounts payable, and more.
CPA: Focused on tax law, strategy, and business expertise, including tax credits, tax filings, and financial statement analysis.
Regular Conditioning: Daily, Weekly & Monthly Action Plans
Track and manage the books
Establish who will record every transaction, where the records will be stored, and who will review or approve certain transactions.
Record retention processes are vital from a compliance standpoint (to provide in an audit), and from a business management perspective. You need the ability to safely store data while efficiently retrieving info when needed.
For those with inventory, plan your inventory counts now. The minimum is annually before the close of your business year, but many would benefit from more frequent inventory counts to determine inventory turnover ratios, reorders, and obsolete items. Put planned and specific dates on your calendar and then stick to them.
Establish how you will receive payment, any associated fees to pass on (such as credit card charges), who is allowed to receive payment, and how frequently you will reconcile those receipts.
Every business is different; some will reconcile daily, others monthly. But failing to reconcile is asking for theft or fraud.
Establish who will be in charge, designate any check signing authority required for transactions over certain dollar limits, and new vendor procedures, as well as any discounts to take advantage of.
Delegating bill pay is a risk if you fail to check for fake vendors, forget to include a cash flow verification procedure, or don’t review A/P aging reports.
Reconcile financial statements
Financial statements should be reconciled monthly. Upon entering all transactional data, tie out the balance sheet to third-party support wherever possible. After reconciling, close the period to seal the records.
Reviewing Game Tape: Report Reviews & Plan Updates
Even the greats review game tape. A successful business should still review their numbers frequently. Taking success for granted is a great way to lose a step to your competition.
Review Key Reports
The balance sheet tells you where you were at a specific point in time, like the score of a completed game. You may not be able to change it, but it helps you score how you did and where you need to improve.
The profit & loss statement tells you where you’ve been over a period of a time, like your favorite team’s win-loss record. You need 50 wins to make the playoffs, and you’re at 45 with 5 games left. You know where you’ve been and what you need to do (win all 5). Now look at your small business. Set your goals, and continuously analyze how you’re doing to get there.
The cash flow statement tells you how you’ve spent your money. Cash is king, and many teams cut or trade veterans when their contracts become too large. The same goes for your small business. There is only so much cash to go around, and you need to be aware of it at all times, especially when payroll is due.
Create or Update Your Plans
Where are you going, and how close are you getting? Your business may be the next big thing, but it probably won’t be overnight. Small business success takes blood, sweat, and tears. Give your business the constant attention it needs, adjust as needed, and see where you go.
Working with Haworth & Company, Ltd.
Depending on what you need, Haworth and Company may be your coach, teammate, or backroom staff helping you on your way to success. If you need backroom staff we can pay your bills, compile your financial statements, prepare your payroll, and file your tax returns. If you need a teammate we can help you analyze your financials, deal with the IRS, and work with your business banker to get you that loan or home approval. And if you need a coach, our team of CPA’s is here to listen, share our experience, and advise you on the latest laws and tax saving strategies. Check out our full list of services, and then give us a call or contact us to take your small business to new heights.