Behind every profitable and efficient small business lies effective accounting and financial management, ranging from seed funding and debt to accounting and cash management. This section contains articles and resources to help you manage the finances of your business operation, covering topics such as how to read a balance sheet, warning signs of misappropriation of funds, what to expect when estimating business startup costs, and how to insure a small business loan.
Small Business Accounting
Accounting and financial management are crucial functions for any business. Even the best business plan can fail without proper financial planning. Accountants are responsible for interpreting financial data, assessing the current situation of a company and advising on the future of it. Accounting, which is an integral part of accounting, is the process of recording the data used in accounting.
The key to successful accounting is keeping accurate records of expenses, income, and related information. These records are kept in the general ledger, which is a single document that shows the financial health of the business.
One of the goals of the accountant is to maintain proper cash management. Businesses regularly borrow or trade their own capital, usually to help them grow or expand, but this must be controlled and offset by reasonable cash flow.
Credit and Debt Collection
Businesses that extend credit to their customers, usually through billing, are usually able to do more business. Customers are more likely to take advantage of special offers or large purchases if they don’t have to pay for everything up front. But credit carries risk. Customers who do not pay or pay late can create cash flow problems for your business. You will want to implement an effective debt collection procedure to protect your business interests.
In addition, you will have to comply with the Truth in Lending Act (which regulates the interest charged for overdue payments) and other laws related to credit and debt. From a practical perspective, it is generally more effective (and more knowledgeable about the customer) to avoid using debt collection agencies as a last resort.
Business and Investor Loans
Capital is needed to start any business. How much will depend on upfront costs, including labor and supplies, and may require multiple loans or cash from investors. The two main types of external financing for a business are debt and equity, each with its own advantages and disadvantages.
An equity investment is essentially an exchange of equity capital – a portion of the company – for equity. Equity investors, particularly venture capitalists, not only own a part of the company (in proportion to the investment) but also have a say in the executive management of the company. But the main advantage is that you do not have to pay the investment in cash.
When securing a business loan, in contrast, you will not trade away any equity and will retain complete control of your business. The downside is that loans are often difficult for small businesses to obtain and incur interest. And if you fall behind on the loan, you may have to give up a house, car, or other collateral.