The truth always comes out at this time of year – right after small business owners file their tax returns. Unless a business owner has learned about accounting practices and knows the ins and outs of profit and loss statements and balance sheets, the language of business finance can be absolutely foreign. As a friend of mine often says, “I think they’re talking Pekingese.”
While Pekingese is a dog, not a language, bookkeeping and financial concepts can be equally as baffling.
Take for instance, the concept of “accounts.” During a business gathering a bookkeeper was talking about which account to put some item in and the owner said, “Well, it has to go into the X-Bank account because that’s the only account I have.”
The bookkeeper looked puzzled until she realized that the owner was confused about what she was referring to as an “account.”
Basically, how your money is classified as it enters and exits your business is through “accounts,” which are subcategories under one of five main categories:
- Assets – These are things that the company owns. They can be physical like cash, inventory or equipment.
- Liabilities – These are funds that are owed, due to be paid to someone in the future. (Think bank loan.
- Equity – This is money that has come from the owners of the company. These are monies in which there is no expectation of repayment.
- Revenue – This is money the company collects from customers.
- Expense – This is money the company has paid out to keep the business running.
There are subcategories beneath each of these five main categories and that is how a bookkeeper keeps all the money coming in and going out organized and accounted for each month.
Why does bookkeeping matter?
When the money is properly accounted for, small business owners can measure their progress and watch their expenses. They can see where they are spending their money and whether they are making good decisions.
If you are a business owner who simply deposits checks when they arrive and pays out bills when they are due, you probably think you are doing okay. That’s the problem, you THINK you are doing okay. You don’t really KNOW.
At the end of the year when you have a box full of check stubs and receipts, you are probably also pulling out your hair trying to figure it all out. But the only reason you do it then is to provide numbers for your tax return.
Give yourself some order this year – give yourself some tools to build your business bigger and stronger.
Hire a bookkeeper.
The Payroll Department is now more than just the payroll service provider you can rely on. They have expanded into bookkeeping services as well. Fully skilled in Quickbooks, Grace Walker can help you get your financial picture looking clearer than it has in years.
Contact The Payroll Department about bookkeeping services today!
-Elaine of The Payroll Department Blog Team