If you own a business, you might be wondering just how much you need to know about the financial side of it. Many small business owners do their own books, but even if you employ an accountant, it’s best to stay full aware of what your finances look like.
Why you need to know about accounting
Lower costs: If you keep records as you go along, it saves your accountant time, meaning you pay less.
Higher accuracy: Only you understand the context behind your finances, so keeping a clear record of them before they reach your accountant leaves less room for misinterpretations.
More insight into your business: Knowing about your finances offers extra insight into what works and what doesn’t, allowing you to make wiser decisions for the future.
As the business owner, don’t pass the responsibility for budgeting onto someone else. Even if you are employing an accountant to work on it, make sure you’re fully involved.
To run your business effectively, you need a clear budget. This ensures that you don’t run out of the funds you need to keep your business working well.
Your cash book
A cash book is a record of all payments coming out of and into your account, and will represent much of the information on your bank statements.
You should keep close tabs on your cash book, keeping track of all the payments associated with your business account.
Sales and purchase ledgers
You need to keep a sales ledger to record each invoice you send and payment you receive. You also need a purchase ledger to keep track of all invoices you receive and what you pay.
Take care to keep a record of all of your invoices, whether this is through an accounting package, or just on your computer. Keep both the invoices you issue to customers, and ones issued to you, in chronological order.
Taking control of your own finances can seem a little daunting at first. To develop the skills you need, it is often a good idea to take a short course such as AAT Bookkeeping.