When
it comes to small business accounting, most people know that it is
important to keep your records updated for taxes. However, there are
many more tips
for small business accounting
that
you can use to grow, improve and expand your business. Here are
some of the most important accounting reports for your small business
that you should know about.
Profit
and loss statement/income statement
The
most important report for any business is the profit and loss
statement, also called a P&L or income statement. This report
tells you how much money a business makes, as well as a lot more. A
well-run bookkeeping operation includes details for where you spend
and where your money comes from. For example, I can look at my P&L
for a quick summary of how much I make from writing, how much I make
from advertising, how much I spend on business travel and how much I
pay for computer and internet costs. Each business would have
different accounts for its own income and spending categories.
Small
business owners should look at this report at least monthly. It is
also a good idea to look at trends, comparing current results to the
same period in the prior year and comparing the most recent month
with the last few months. This should tell you what’s working well
and what isn’t, as well as help you focus on the most
profitable parts of the business. This is exactly how I analyzed by
business to help
me reach $10,000+ in monthly income.
Balance
sheet:
A
balance sheet gives you a snapshot of what a business has and owes at
any given time. For small businesses, assets typically include things
like bank accounts, accounts receivables, and possibly an
investment account. A balance sheet may also include assets like
property, computers, equipment and other saleable physical and
intangible property. Liabilities generally include things like credit
cards, business loans and anything else your business owes.
The
accounting equation is based on the balance sheet. It tells us that
assets plus liabilities equals equity. The difference in what you
have and what you owe should ideally be a positive number and one
that grows over time.
When
examining the balance sheet, also look at the short-term assets
versus short-term liabilities. If you have payments owed soon, you
won’t want to run out of cash without noticing that your assets are
illiquid.
Accounts
receivable aging
You
don’t work for free, and your business isn’t a charity. Doing the
work and sending the invoice is just part of the battle. You also
have to make sure those payments get paid and collected.
Your accounts receivable (A/R) aging report tells you how well you
are doing on the collections side. Look out for customers who are
perpetually late, usually pay on time and recently started paying
late, and growing late balances from any customer.
I’ve
been very lucky when it comes to collections, but part of that is
choosing the right clients to work with. Upstanding companies like
Due always pay quickly. Some less stable, less trustworthy or
financially strained companies are more likely to pay late or stiff
you when it comes time to pay the bill.
Revenue
by customer:
Just
as you should be looking at who owes you money, you should be looking
at who gives you the most of it. Your revenue by customer report
tells you how much you made from each customer over a period of time.
Freelancers and professional service businesses rely heavily on
repeat business in many industries. Building good relationships with
quality clients can turn in to a lucrative, reliable, and healthy
income stream.
However,
beware of putting too much faith in any one income source. If too
much revenue comes from one source, that is called “revenue
concentration risk.” If one client leaving would ruin your entire
business, you need to get more diverse in who your business serves.
Putting too many eggs in one basket might
just bankrupt your company.
Accounts
payable aging
You
probably wouldn’t like it if a company took too long to pay you. Do
your vendors a favor and pay them on time as well. Your A/P aging
report tells you who you owe and how much. As long as your books are
updated, you can easily look and find who you need to pay so you
don’t miss the due dates.
Paying
late can sour relationships and may lead to late fees and other
costs. Just pay on time. You might even get an early payment discount
from some vendors. That’s a big win-win!
Credit
Original Source: https://www.entrepreneur.com/article/325055
