Accounting

Many new things become fun and exciting once you understand them. To begin to understand accounting you have to know what some of the key terms mean. When you are armed with this foundation of knowledge much of the fear will melt away. In time you will look back with an inner feeling of strength and even pride that you know the subject and you will even wonder why you were so worried in the first place.

Not only is accounting a new language, it is a collection of information about how well you are doing, who your customers and suppliers are, and who works for you. Yes accounting includes people too. Accounting is critical to management of all your resources, and people are a resource. It will actually give direction to your business. It is your road map to success. You will have a handle on things like which months are slower than others or maybe what types of customers are using your business the most. Accounting will help you to develop or manage your business plan. Accounting can give you the information you need to create a plan allowing you to combine business activities with pleasure activities. Wouldn’t it be nice if that new plan you created for your business could be accomplished while you are on a cruise ship with your entire family? Wouldn’t it be great if that business trip on the cruise could be accounted for as a tax deduction?

Is accounting and bookkeeping the same thing? Perhaps the easiest way to answer this question is to say that bookkeeping is a part of accounting. In a nut shell bookkeeping is the data entry part of the big picture. The big picture is accounting. Bookkeeping may be looked at as the tools in a toolbox (raw data). Accounting is taking the tools you need from your toolbox, when you need them, and building something new or fixing something that is broken in your business.

After you have learned this new language, and have become less anxious about it you need an accounting system that fits your business. You may be using a software package you purchased on-line or at the local office supply store. Even though it is a canned program you will be making the system unique to your business. You might think that since your business is a new business it might be a bit early to be considering accounting software. Think again. You can use the old metal filing cabinet in the corner of your basement to store pieces of paper, but it is one poor way to regularly study the fiscal performance of your business. It is very tough to identify trends without the accounting system in place. It is even harder to figure out who is or isn’t paying you what they owe.

Let’s say you ordered something critical to your business when you first started up. You haven’t had to order any more since, but now you are getting low on your supply. Where did you get it in the first place? How much did it cost then? How long did it last? How much does it cost now? How long did it take for delivery? Your filing cabinet probably won’t answer all of these questions and could take a lot of your valuable time to find the information. If you find the information you need from your filing cabinet, what is it going to take to make that information meaningful today? Remember, when you first ordered your business was new. Now it is growing. How do you judge correctly how fast that growth is and how often you have to reorder in the future?

From the beginning of your new business you should establish a partnership with an accounting professional. The service such a professional may provide covers a lot of area. From the start, you might need help setting up your accounting system. Also from day one you will need tax advice. Your professional partner can make sure you are ready to generate the types of reports necessary to stay within the often-changing tax laws. They can help you to take advantage of tax deductions you may not be aware of, and reduce your tax liability.

Do your homework. Find a qualified person who is licensed in your state. Take the time to feel you can develop a trust in that person. Check that person out. Don’t be afraid to ask for a list of businesses that you can contact so you can get the information you need to develop trust. You need to know if the person or firm you are dealing with is going to be there for you at the time you need them, or do they have a history of difficult business hours? If you have friends with their own businesses ask them who they use and how comfortable they are with them.

Now you know what accounting is and what it can do for you. You know the basic difference between accounting and bookkeeping. You know you are going to need professional help starting your accounting system and where to get occasional help from that professional. Now you need to put the pieces together. To do this you need to determine when your business actually started. That will be your fiscal year start. It will be the starting point for your accounting system. Starting at that point, everything that you do will be recorded in your system (the bookkeeping part of accounting).

Everything you record will be entered into an account in your accounting system. You will have different accounts for different fiscal things. These things will either be assets or liabilities. Assets should include your bank account information (checking and saving accounts), what is owed to you (accounts receivable), your current inventory of supplies, equipment and product, On the liability side you should include money you owe to others (accounts payable). Be sure to include monthly payments you make like your telephone bill, utilities payments, and your credit card balance.

The minimum information in your accounting system should include:

1. The beginning date of your fiscal year

2. Your company’s legal name

3. Employee information such as Social Security numbers. Be sure to include yourself.

4. Federal, State and local tax information and sales tax information, such as the rate of taxation

5. Each of the forms you will be using to enter the data to record tax information

6. List your vendors and suppliers (name, address, phone number, e-mail address, vendor ID number)

7. List of inventory: particularly the products, if your business is providing products.

8.Your method of tracking sales (product, customer, date, etc.)

9. Customer information (name, address, phone number, e-mail address, customer ID number)

10. Inventory cost to you

11. Inventory in stock (on hand)

12. Supply and equipment cost to you

Once you have created your starting point and complied all of these pieces of information, it would be a good time to consult that friendly, trusted accounting professional with whom you have become comfortable.

I hope with this as your starting point for learning your new language (accounting) you might begin to have fun with it. If it still isn’t fun at least maybe it scares you a lot less. When you see the money coming in and know how to use accounting to keep the business growing, it will become fun. It’s like watching football. The first time you watched it you didn’t understand it. The first time your favorite team won (or at least did well) you became interested. You started to learn more about the sport. As you learned more your interest grew. As your interest grew football became more fun. Just like in football you will be anxious to check on your business’s latest scores. Just think, instead of watching your favorite football team winning, you will be watching yourself winning.