FAQs: Small Business Issues
How Can Accounting Help Me
Run My Business More Effectively?
By having an accounting
system that produces a monthly profit and loss
statement, you will quickly be able to ascertain if you
are making money or not. With this knowledge you will be
able to make decisions about changes that need to be
made about how you are running your business. For
example, you may have to increase prices or reduce
expenses, or do both, to get into the profit column.
Do I Really Need an
Accounting System?
Yes, unless all you want to
do is make bank deposits, write checks, and pay
your taxes. This is simply not enough for most business
owners, however. You must not lose sight of the fact
that you are in business to make money and, at the very
least, you need an effective reporting system to inform
you about your income and expenses and to tell you when
you are—or are not—making a profit. Controlling
your expenses is one of the most important tasks for any
business, and you can only control them if you know what
they are.
Surely All I Need Is a
Bookkeeper?
It is true that a good
bookkeeper can do the basics for you and possibly even a
good accounting software program could suffice. However,
these options will prove to be a false economy. It
is important for the future success of your business
that you grasp the basic principles of accounting
because, without this knowledge, you will not be able to
interpret the data reported to you by your bookkeeper or
accounting software program. Understanding and
interpreting financial data will enable you to make the
necessary changes to your business operations that will
help you fulfill the objectives in your business plan.
What Is a Balance Sheet ?
A balance sheet is one of a businesses’ most
important accounting documents, as it shows what assets
and liabilities a company has and how the assets are
being used. You should be able to tell a number of other
things from your balance sheet, including whether or not
you are holding levels of stock that are too large and
whether your income is growing or declining. A balance
sheet also provides information that is useful when
assessing the financial stability of your company.
Is It Necessary to Produce
a Balance Sheet Every Month?
No, not if your business is a
small one. However, if you are not going to produce a
balance sheet every month, then you will certainly
require a monthly profit and loss statement so that you
can see exactly how your business is performing and take
any necessary corrective action before it is too late.
Also, if income received or inventories tend to
fluctuate regularly, then monthly balance sheets will
highlight the significance of this for you.
Is an Income Statement
More Important than a Balance Sheet?
Even though the balance sheet
has correctly been identified as an important document,
the income statement is probably more important to a
small business owner. The income statement identifies
whether or not you are making a profit and lays out your
actual cost areas.
Do I Have to Be Able to
Understand the Various Formulas for Depreciation?
The simple answer is “no, you
don’t.” That is what your accountant is for, so make
good use of him or her. Your accountant will make an
absolute calculation of depreciation for you at the end
of the year, but if you need the information in earlier
for your own management purposes, that can be done also.
But again, you need a good CPA!
Four out of five small businesses fail within the first
five years
according to the SBA because they don't have enough
professional
advice. Mainly they need a good mentor, but a solid
Austin accountant
can really help. Get a good Austin accountant or CPA.