Many first time business owners often run into similar issues when it comes to finances. This is usually caused by a lack of understanding of accounting and bookkeeping.
Small business owners understand the need to wear multiple hats. They have to be CEOs, marketers, bloggers, salesman, VP, and bookkeeper. It’s the last one that usually gets underestimated. There is a big difference between personal finances and bookkeeping, and business finances and bookkeeping. This leads to misrepresentations of success in various aspects of your business.
Without a solid
understanding of bookkeeping and accounting methods, it’s nearly impossible to
accurately gauge success or failure. Whether you’re talking about a new product
launch, marketing campaign, or customer service policy.
This article will discuss the 5 essential bookkeeping items a startup should track.
The most important
bookkeeping item to track is your cash. When the cash runs out your business is
paralyzed, unable to pay bills, debts, or make new investments.
Tracking cash is often done with two log books. One to track cash receipts and one to track cash disbursements. This is to help avoid certain issues like overspending.
Once a month an
accounting “close” should be done. This should track all important
receipts and disbursements of cash to provide an accurate picture of how much
cash you actually have at the end of every month.
While you may think
you have enough money in the bank to not need to worry about overspending you
may find yourself in for a rude surprise.
2- Accounts Receivable
If your company sells
a product or provides a service for which payment is not collected for right
away, you have accounts receivable. Next to your actual cash, your accounts
receivable is the second most important item to track.
Remember, this is
money you haven’t been paid yet. Tracking these means accurate and on-time
invoices and receipts which allows for timely payments.
This is important for
the end of the month when conducting an accounting “close.” This will
help you to know where and how much of your money to go out.
3- Accounts Payable
Much like your
customers owe you money for your products or services, your business owes
others for either their products or services. This means having accounts payable. Or a more demonized
word for it could be…
Every business, large
and small alike, must pay their bills. This is why it is very important to
track your accounts payable so that you know how much money your company is
spending each month.
Accurate tracking of
accounts payable can be compared to accurate tracking of accounts receivable,
providing a clear picture of how much cash you should have left. You can find
easy to use tools and software on a bookkeeping website to help you track
your transactions, accounts receivable, and payable.
This will often trip
up financial records seemingly out of nowhere. Usually, because things like
manning hours, requirements, and documents aren’t considered.
For example, knowing
you pay three employees $13 an hour and multiplying that by how many hours each
worked a week, will not give you an accurate picture of your payroll. You need
to know how many hours your business is open, the number of employees needed
for one normal day, the shifts they would work, and then the number of
employees needed to be compliant with federal and local laws.
This will help you to
understand exactly how much you are paying your employees or a more accurate
picture of your payroll. Understanding your payroll will help you to have a
more accurate accounts payable record. For online payroll support, it wouldn’t
be best to rely on a bookkeeping website, however, this should be fairly easy
to track internally until you reach quite the number of employees.
Much like payroll,
inventory is a touch more complicated than counting your stock. You need to
think of your inventory as money sitting on the shelf.
When your account
closing at the end of the month reflects $20,000 of merchandise purchased and
only $2,000 sold that month, that is $18,000 sitting in your storage facility
Understanding this will help you to know how much you are actually moving in terms of money and inventory a month. If your financial records show $10,000 left in inventory and your inventory count reflects $13,000, there is a problem.
Accurate records help
to ensure you stay legal and don’t have surprise visits or bills from the IRS.
Summing up Startup Bookkeeping
All these items don’t
require any special accounting tools and tricks;
these can be tracked with some simple bookkeeping. However, even this simple
bookkeeping can ensure you don’t end up with any nasty surprises.
Not only will
bookkeeping help you to track your finances with accuracy, but it will also
help you to better understand how successful or not your business is. It is impossible
to determine a successful advertising campaign without having accurate
financial records to validate the reflection in sales and conversion rate
Don’t get overwhelmed
by numbers and the thought of accounting. It’s not rocket science or heart
surgery, it’s bookkeeping. Just keep the books.
About Author: Veronica Sandberg
I am a small business coach with years of experience in empowering hundreds of people to find their true potential and changing their lives to the better. I am a proud working mother of three beautiful daughters and I love supporting the community.