Accounting Basics Every New Business Owner Needs to Know

Basic bookkeeping is the practice of recording all financial transactions for a business. It includes tracking money coming in (income) and going out (expenses). Maintaining accurate books gives small business owners a clear picture of the financial ...

Bookkeeping provides the data needed to produce financial statements like the income statement, balance sheet, and cash flow statement. These reports allow business owners to analyze their company's performance, spot trends, and gain insights to make intelligent financial decisions.

For small businesses, bookkeeping is a fundamental part of financial management. With proper bookkeeping, it's possible to know whether the company is profitable, what the revenue streams are, what expenses need to be controlled, how much cash is available, and what taxes are owed. In short, bookkeeping gives small business owners the visibility they need to manage their finances and strategically operate their company.

Keep Track of Income

Keeping track of all money coming into your small business is critical to bookkeeping and accounting. It includes recording your business's income from sales, services, interest, or other sources.

Most small businesses' income comes from providing products or services to customers. It's important to have a system to track each sale and payment transaction. Use software or spreadsheets to log details like date, customer name, product/service, and dollar amount for every income transaction. Keep all sales receipts and invoices organized for your records.

If your business earns interest income from a bank account or investments, record these earnings as they are paid out. Other less common sources of business income may include rent payments from tenants, proceeds from asset sales, or miscellaneous income like rebates. Input each income transaction when it occurs.

Having a complete record of all money coming into your business is necessary for accurate bookkeeping. It allows you to determine your true revenue and net income over time. Failing to track income transactions can cause major headaches at tax time or if you ever need to audit or analyze your finances. Get into the habit of logging every dollar that comes into your business from the start.

Keep Track of Expenses

Keeping track of all business expenses is a crucial part of bookkeeping for small business owners. Records every dollar that goes out of the business, whether it's recurring expenses like rent and utilities or one-time purchases like office supplies or equipment. Some basic expenses small business owners need to track include:

Inventory costs: If you manufacture or sell products, you need to log the amount you spend to purchase inventory and document the value of your current inventory. This allows you to calculate the Cost of Goods Sold.

Payroll: Track everything you spend on payroll, such as employee wages, bonuses, benefits, payroll taxes, and retirement contributions. Payroll is often one of the largest expenses for small businesses.

Rent and utilities: Log all monthly expenses like rent, electricity, gas, water, internet, phone service, and other bills.

Supplies: Things like office and cleaning supplies used to run the business must be recorded. Keep track of one-time big supply purchases as well as ongoing smaller ones.

Equipment/assets: Record and depreciate business equipment, furniture, and vehicles.

Repairs and maintenance: Track costs related to upkeep, maintenance, and repairs of business equipment and property.

Travel: Mileage, flights, hotels, transportation, meals, and other travel costs should be diligently recorded, especially when traveling for business.

Marketing: All advertising, promotion, and marketing expenses, such as online ads, printed materials, signage, sponsorships, trade shows, and more, should be tracked.

Professional services: Record payments made to freelancers, accountants, lawyers, consultants, designers, contractors, and any other professional services.

Carefully tracking every expense is critical for getting an accurate picture of the business's financial health and for tax purposes. Keeping meticulous records makes completing tax returns much smoother. There are various methods small business owners can use to track expenses, from expense reports to bookkeeping software. The key is to record everything and have an organized system.

Manage Accounts Receivable

Accounts receivable refers to money that customers owe your business for goods or services purchased on credit. Effectively managing accounts receivable is crucial for ensuring a steady cash flow and avoiding late or missed payments.

You'll need to track all outstanding invoices and payments due from customers. Send invoices promptly and clearly state payment terms like net 30 days. Follow up with customers as invoice due dates approach. Offer easy payment options like accepting credit cards.

Use accounting software to create professional invoices, log transactions, and generate aging reports showing unpaid invoices. Send payment reminders when invoices become past due. Evaluate individual customers' payment history and creditworthiness when deciding whether to continue offering credit terms.