Basics of Small Business Accounting

A small business is essentially a System where all components contribute to or support the overall success of the whole. Such difference is fundamental to survival. A small business needs to be dynamic – sustainable in all markets, offering highly differentiated services to all its customers, dynamically coping with changing market conditions. It needs to be flexible and innovative to respond to changing market conditions, rapidly and effectively improving customer service and product quality. It needs to be focused on growth and marketing to increase sales and profit margins. It also needs to have adequate protection from all kinds of competition, particularly from the major markets.

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Basics of Small Business Accounting

A small business is essentially a System where all components contribute to or support the overall success of the whole. Such difference is fundamental to survival. A small business needs to be dynamic – sustainable in all markets, offering highly differentiated services to all its customers, dynamically coping with changing market conditions. It needs to be flexible and innovative to respond to changing market conditions, rapidly and effectively improving customer service and product quality. It needs to be focused on growth and marketing to increase sales and profit margins. It also needs to have adequate protection from all kinds of competition, particularly from the major markets.

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All these requirements cannot be provided by a small business system that is based on traditional approaches, with little if any thought towards the principles of progress and efficiency. Small business must take to advance principles seriously. Its present system is not efficient, flexible, competitive and sustainable. It needs to change, to evolve, to take on challenges and move towards excellence. The Small Business Administration provides guidance to small businesses based on the principals of progress, efficiency, sustainability and creativity.

The SBA staffs several programs and initiatives focusing on improving small businesses. The most popular of these are – Program for Entrepreneurship (PFE), SBA Services for Entrepreneurs (SFE), and Catalog of Business Solutions (CBS). These can assist a business in taking the following steps towards improvement: * Providing financial tools and resources for growth * Creating a strong marketing position for your business * Developing a sound accounting system * Improving cash flow management * Establishing and maintaining quality relationships with suppliers and customers * Identifying and overcoming bottlenecks * Making use of technology to expand your reach * Improving sales and market penetration * Enhancing staffing flexibility To carry out these activities successfully, a small business needs to have sound business plans and a plan for succession. However, even after all these improvements have been made, a business will still need financing for its continued existence. The SBA has developed a number of financing options for small businesses: Line of Credit, Business Lending, Venture Capital, Commercial Mortgage, First Mortgage, Future Finance, Business Option Voluntary Agreement (BOVA) and Convertible Debt Obligation (CDO).

The SBA manages the financing and management of a company’s cash flow. Cash is important for every business as it enables the business to make purchases and repay its loans. Allocating the funds properly and wisely so that there are no problems with liquidity is essential for a sound business plan. Proper financing and management of cash help improve cash flow in the business and hence helps the business to grow.

While creating a business plan, small business owners need to be aware of three crucial factors that affect cash flow. They are competition, financing and debt. It is imperative to identify the competition in the market. This helps business owners get an idea about the market requirements and thus improve their products or services and come up with a competitive business plan.

Another crucial factor in small business finance is bookkeeping. Bookkeeping involves the recording of financial transactions like sales price, purchases, gross margin, trade debts and other types of debits and receipts. To facilitate the recording of transactions, most business owners use bookkeeping software. The basic function of bookkeeping is to record the financial transactions and enable the management to make informed decisions.

For better record keeping and decision making, most business owners use accounting software to record their financial transactions. While using accounting software, one must follow few basic principles. The principles of accounting to ensure that business records are kept in the correct format and are updated at regular interval. Some of the basic principles of accounting include the income statement, balance sheet, statement of cash flows, statement of business transactions and statement of cash resources. Every business should follow certain principles, because it helps them to maintain the consistency in performance and finances.

A small-business accounting system may be complex in nature; however, it can be made simple through the use of good bookkeeping software. Small business accounting requires a lot of patience and regularity. It is imperative to update the books at a regular interval, so that the financial position is accurate. Business owners should hire the services of professional bookkeepers, who can help them in running the business more efficiently.

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