Successful businesses all have one thing in common — the owners know and understand “the numbers.” The trouble is that accounting is not the most exciting part of running a small business. Small business owners that discipline themselves to understand accounting basics and employ people that can help them organize their financials consistently outperform their peers.
Mirella Mordoki is an experienced entrepreneur and bookkeeper from Fullerton, California. Mirella and her husband, Alberto Mordoki, have been involved in real estate, dry wall, and construction businesses for many years. Mirella is currently the controller of its construction business. She shares a quick guide to small business best practices and techniques.
What’s The Difference Between Budgeting And Accounting?
Many small business owners confuse these two ideas — budgeting and accounting. That said, both are important for a growing business. But one (budgeting) deals with planned spending, and the other encompasses all the financial aspects of the business, including sales, financial statements, and taxes. Most adults understand how to budget — the process through which one itemizes each of their costs and disciplines their spending to increase profit margins.
But graduating from budgeting to accounting requires a deeper understanding of cash flow (money coming in and out), net worth (cash plus assets minus liabilities), debt repayment, depreciation, estimated taxes, and payroll, notes Mirella Mordoki.
Accounting And Bookkeeping Technology Tips For Small Business
The first tip may come as a relief to some business owners. For those that have difficulty understanding accounting, they should work with someone that does. Experienced accountants are popular business partners for this very reason.
But small business owners can also enlist the help of a certified accountant or bookkeeper. Either way, the owner should spend time with the individual in charge of accounting and ask them detailed questions about the financial state of the business. Operating a business blind to its financial state is risky and likely to fail, says Mirella Mordoki.
Second, cloud accounting software like Quickbooks Online, Sage, or Freshbooks will make the process much easier. These platforms are inexpensive and can greatly simplify the accounting and bookkeeping processes.
What’s The Difference Between Cash And Accrual?
When it comes to tracking sales, most small businesses deal with accounts receivables and paid invoices. As such, there are two approaches to recording sales: cash and accrual. In the cash method, business owners track sales that are invoiced and paid. The cash method is the most common method and is more straightforward.
Accountants only track sales as paid invoices, and unpaid invoices are recorded separately. In the accrual method, business owners credit sales once they send an invoice. For example, the accrual method records Net 30/45 invoices as sales before the customer completes the transaction.
This method is more common when a business wants to better track its overall net worth since unpaid invoices do hold value. Small businesses looking for lenders or investors may be more inclined to use the accrual method to give a clearer picture of their sales volume, says Mirella Mordoki.
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