Not all small businesses pay attention to keeping financial records, but they really should. Whether your business is large or small, the principles of accounting still apply. If you have no idea what money is coming into or out of the business, you don’t stand a chance of making it a success. You are also at risk of running into tax problems further down the line. Here are some reasons why you need to brush up on your accounting skills, and if you don’t have a clue, it’s time to book a training course.
Stay in Control of Cash Flow
Maintaining a positive cash flow is critical when you are running a business. Once cash flow dries up, it becomes impossible to pay your creditors, salaries, run branding campaigns and run the business on a day-to-day basis. Implementing a good accounting system shows you where the cash is going. Use this knowledge to help you plan ahead for future expenditure. Accounting software like Sage, ClearBooks and QuickBooks all have report functions, so you can run an instant Profit and Loss account for a snapshot of where your business is currently at.
Maintain a Good Credit Rating
Repeatedly missing creditor payments is not good for your business’s credit rating. All businesses rely on credit at one time or another, so anything that dents your credit rating will harm you. Bad credit means you are stuck with high interest rates and very few lenders when you need to borrow cash. Staying on top of your accounts ensures no late payments.
Measure the Business’s Performance
Without an accounting system in place, it is difficult to measure how well the business is doing. Sure, you may know how much money is coming in if you only have a handful of clients, but do you know what your operating expenses are, or how much profit you made last year?
Use accounting skills to drill down into the figures and find out exactly how profitable the business is. Once you know how much money you are making, you can make sensible decisions about whether now is a good time to expand or hire new employees.
It’s not always easy to spot when you are overpaying for stock or a client is late paying their invoices month after month. Accountancy skills are invaluable in this regard. They help you make sense of the figures and see where you can make savings. It doesn’t matter how successful your business is if you spend like there is no tomorrow.
There are many ways to keep accounts for a small business. Some people are happy to work with spreadsheets; others prefer to use an accounting software package. How you maintain accounts is not important, but what is important is that you do stay on top of your financial record keeping. If you don’t, your business is at serious risk of failure, so if numbers baffle you, consider brushing up on your basic accounting skills.