Essential Accounting Skills for Small Business Owners. Hello everyone, I hope you are well. In today’s post, I will be exploring the essential accounting skills for small business owners. As a small business owner, having a basic understanding of accounting skills is crucial. This knowledge can help you manage your finances, make informed decisions, and ultimately, improve your bottom line. Some of the essential accounting skills you should have include bookkeeping, financial analysis, budgeting, and tax preparation. By mastering these skills, you can ensure your small business is financially stable and prosperous.
Essential Accounting Skills for Small Business Owners
Running a small business comes with various challenges, and for many owners it’s accounting that’s one of the biggest. Pouring over columns of figures isn’t usually top of the list of fun things to do for most of us.
But business owners aren’t “most of us”. If you’ve got the drive and entrepreneur spirit to get a business off the ground, learning accounting and taming that beast is vital for keeping your flag flying.
Here then are seven essential accounting skills for small business owners that’ll help you make informed financial decisions, avoid common pitfalls, keep you legal and profitable and ensure your future success and growth.
Bookkeeping is the foundation of accounting and involves recording and organising financial transactions. You’ll need a solid understanding of the principles involved, including why they’re important. Aspects of your bookkeeping routines should include:
- Recording sales
- Tracking expenses
- Reconciling bank statements
- Maintaining accurate records
Being familiar with accounting software or spreadsheets is helpful, but if you’re finding just getting to grips with bookkeeping is enough of a learning curve, subscription-based online accounting services (FreeAgent, Quickbooks and many more) can help. Learning professional methods is also a sound idea, and if you can’t take a class in person then learning accounting online is a good alternative.
Financial Statement Analysis
If you can read and understand a financial statement, you’ll really be able to dig into the financial health of your business. A financial statement will help you interpret your profit and loss through balance sheets and cash flow statements. If you’re a sole trader you’re under no legal obligation to generate financial statements but, if you do it anyway, you’ll spot trends and be able to assess your profitability, both of which can help you make good financial decisions about pricing, investment, and cost control.
Budgeting and Forecasting
When you know how to budget and forecast for your business, you can set your financial goals and allocate the needed funds without depriving other business areas of the attention they need. You can track progress and monitor performance so you can adjust if necessary. You’ll quickly spot if your projections are drifting and make sound decisions about how to bring it back on course. Maybe things aren’t happening within your predicted timeframe, or maybe it’s costing more than you thought. Having a budget and forecasting plan keeps you in control and financially more stable.
There are all kinds of regulations and legislation around business, and as the owner it’s up to you to make sure you understand them.
At the very least you need basic knowledge of income tax, VAT and National Insurance. Things get a little more complicated if you employ people, and tax laws change depending on your business model such as being a sole trader, freelancer or running a limited company.
And just to keep it lively, tax regulations change quite often. If you’re doing your own books, make sure you know how to fill in a self-assessment tax return, what your deadlines for submission are, and what expenses you can claim. You could hire an accountant to do it for you or take an accounting course so you’re confident you can minimise your tax liabilities.
Cash Flow Management
Keeping the cash flowing is a vital accounting skill. Without it, your business can quickly stall. You need to know where money is coming from and when it’s due, who owes it and their payment deadlines so you can chase if necessary. You also need to monitor your own expenses and pay invoices on time. It’s often a balancing act but it’s necessary to manage working capital and meet your financial obligations.
If you’re selling physical products, you have an inventory to manage, and good accounting can help. By tracking your inventory levels, you can assess stock turnover, reorder on time, and avoid overstocking while carrying enough to meet customer demand. It keeps your finances under control without tying up more funds than you need to.
As a small business owner, you’re making financial decisions all the time. Having a good set of accounts can help you assess the financial implications of any decisions made, giving you options on the risks and likely returns, and helping you adopt good pricing strategies or develop expansion plans.
Being familiar with good accounting practices is not, of course, a silver bullet to business success. But it certainly streamlines your success pathway. And once you understand it, it becomes a lot more interesting. Your accounts are like your business blueprint and history. They are also, in some ways, your crystal ball, offering insight and foresight you wouldn’t otherwise have.
So dig in, learn accounting, and watch your business, and business sense, flourish.
I hope you enjoyed that.