Small businesses are a fundamental part of the world of commerce. They see an opportunity and act on it, providing indispensable and valuable goods and services, creating employment and sustaining communities at the same time.
There are a number of benefits to be recognised as an owner of a small business. As a small business, it is easier to build personal relationships with customers, suppliers and employees. Such strong relationships can ensure the longevity of a small business. Flexibility is another major benefit of a small business as they can respond to change and to challenges much quicker than a larger business. Therefore, they are better placed to develop new ideas and to respond to innovation and inventiveness.
However, for all the benefits of owning a small business, the job of a small business owner cannot be described as an easy one. They can wear many hats – human resource specialist, marketing specialist, production specialist, IT support and customer service. However, one of the most important hats for a small business owner to wear is that of an accountant.
Needless to say, staying on top of the accounts of any business s is vital to its overall success. Accounting mistakes can impede the growth of a small business so a solid basis in accounting makes sound business sense. The following are what could be considered as the five essential accounting skills for all small business owners.
#1. Basic Bookkeeping
Accurate and up-to-date bookkeeping is an essential element of a successful small business. Poor bookkeeping can cost a business money and is often the first step in its ruination. Therefore, a small business owner should be able to record the transactions of the business by accounting for debit and credit transactions whilst also being able to understand the interaction between individual accounting entries.
#2. Financial Statements
A small business owner must be able to prepare financial statements based on the book-keeping records that have been maintained. The four main financial statements are the balance sheet, income statement, statement of retained earnings and the cash flow statement. These financial statements must be analysed by the business owner in order to assess where the firm is, financially speaking, and the results can be used to calculate the business’s financial needs in the future.
#3. Cash Flow
Cash flow control is a method of ensuring adequate cash resources is at the disposal of the business and can also aid in projecting its future needs for cash. Cash flow is extremely important in a business because, as its life blood, it is necessary for its survival. Cash flow control involves monitoring the cash coming into the business and the cash going out and what the balance of cash is at the end of a particular period.
As a small business owner, you are responsible for making certain returns to the taxation authorities including employee taxation returns and VAT returns, if necessary. Every small business owner should make themselves aware of the taxation requirements which apply to their business so that they are operating within the parameters of the law. In addition, there may be business deductions that the small business may be entitled to which may reduce any tax liability.
#5. Forecasting and Budgeting
For a small business owner to be able to forecast and budget accordingly is a huge asset. The success of any small business rests on the owner’s ability to forecast as accurately as possible. This gives the business a clear path for growth and is also a useful tool when seeking credit from financial institutions. Forecasts and budgets go hand in hand as a forecast will feed into a business’s budgets from year to year.
It is evident that these accounting skills are essential to any small business owner and that a great benefit is to be realised from just a basic knowledge on the subject of accounting.
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