Who starts a small business, becomes their own boss, and suddenly has all of the answers?
Nobody.
Take heart that no one starts out as an entrepreneur having the answers—you simply have more and more questions.
A clear financial understanding is at the foundation of any small business, but breaking the ice in learning how to financially manage your books can take some serious courage.
Read on to learn what it takes to get the basics down when it comes to bookkeeping and accounting. Watch your business know-how go from flop to fortune. Trust yourself: you can totally do this!
1. CASH: Understanding cold hard cash.
Bookkeepers will often keep two journals: Cash Receipts and Cash Disbursements. What goes in. What goes out. Tracking this simple cash flow keeps all of your business transactions in one place.
2. INVENTORY: Mapping what you have.
Inventory is like cold hard cash that is just sitting on your shelves or in your refrigerator. Whether it be heads of iceberg lettuce in your restaurant kitchen or boxes of the latest non-fiction release at your indie bookstore, taking stock of your inventory levels should be a regularly occurring activity. Make sure your inventory in real life matches up with the numbers you have in your books.
3. Becoming friends with ACCOUNTS PAYABLE.
To do business, you have to spend money. When you have a clear idea of who you owe money to, you’ll be better able to determine just where your money is going. Good bookkeeping is all about making timely payments and making sure that no transaction is doubled. #organizationisking. If you can get ahead of the game, and make payments before they’re even due, your business may be eligible for discounts. See what’s possible!
4. ACCOUNTS RECEIVABLE: When the money is due to you.
When selling products or services and your small business doesn’t collect the payment immediately, you will have certain “receivables” you must track and eventually collect. Again, organization rules supreme here. When the time comes for you to collect payment, you want to make sure you’re certain just what you should be owed.
5. LOANS PAYABLE: Giving the borrowed money back.
As you grew your small business, did you ever have to borrow money for a new slicer, a lakefront storefront, or a one-of-a-kind piece of furniture that ties your whole store together? Loans Payable is all about tracking the money (and paying that money back on time) that you’re repaying to those individuals who were gracious to offer you the loan in the first place. Hint: Watching this number decrease and decrease over time (and eventually disappear!) is certainly cause for dedicated perseverance and then a giant celebration.
6. SALES: “The good stuff.”
The more you sell, the more you make, right? Tracking Sales is the information from all the sales you sell. Keeping these records accurate and up to date will help solidify your footing so you know just how your business is going and/or growing…
6. PURCHASES: Because every business needs stuff.
What do you need to buy to keep the business going? Keep track of those items here. When calculating “Cost of Goods Sold” (COGS), you will subtract Purchases from Sales to find the gross profit of your growing business.
7. PAYROLL EXPENSES: Paying those who work for you.
No one is going to work for you for free, so keeping track of Payroll Expenses is non-negotiable. When tax time comes, you will need all of your ducks to be in a row. The best way to keep all of your quacking ducks in a row? Tend to Payroll Expenses all year long. Your employees and the United States government are depending on you.
8. RETAINED EARNINGS: Putting money back into the business.
Are you ready to put some of the profits you earned and invest that money back into your business? These Retained Earnings that don’t get paid out to the owners or co-owners is cumulative, which means it will continue to be a larger and larger running total throughout time. Tracking this one isn’t difficult, but if you have investors or lenders who may be keen on helping you grow, stats and numbers like Retained Earnings will need to be accurate for any possible conversation. You want to show these guys and gals just how your small business has continued to grow over time.
You should be ready to hit your books and get reorganized. Remember, an organized bookkeeper is a sane bookkeeper.