One small business owner realized that vision, optimism and a willingness
to work hard were vital to the success of her new venture, but the key
requirement was attention to the balance sheets. "It took me a while to learn it, but you really have to run a business by the numbers."
And you can't run a business by the numbers without an adequate
accounting system to use as a management tool. Incomplete records are one
of the most serious errors a small business owner can make. Very few
operators enjoy the number crunching segment of running a business.
However, if you keep your system simple, it can be done with a minimum
amount of time and energy. Besides, accurate and complete financial
records will help you chart the growth of your business and make plans for
the future.
To begin with, your books should include accurate and thorough state-
ments of sales and operating results, fixed and variable costs, profit and
loss, inventory levels, and credit and collection totals; tax returns and
reports to regulatory agencies; and comparisons of current data with prior
years' operating results and budgeted goals.
In addition, you should also track daily cash receipts and credit
sales, expenses and inventory received, plus employee expenses including
pay and deductions.
A good recordkeeping system should be easy to understand, reliable,
accurate, consistent and designed to provide information on a timely basis.
There are two methods of accounting: cash and accrual. Using the cash
method, income is recorded when the cash is received and expenses are
recorded when paid. With accrual accounting, you record all income and
expenses whether paid or not. Both cash and credit transactions are
recorded when paid. Whether you use the cash or accrual method, both
require four basic types of records:
- Sales records
- Cash records
- Cash disbursements
- Accounts receivable
To determine which system is best for you, consult with a financial
advisor or public accountant.
Reprinted from the United States Small Business Administration
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