As a young entrepreneur, you're probably focused on growing your business and making money. But if you’re not careful, you could end up spending your hard-earned money on things that will never help your business grow. One of the best ways to avoid this is by knowing exactly where every penny is going.
It is important that you understand the basics of accounting to get a better picture of where you stand financially and make smart decisions. In this article, we’ll go over 4 tips on what every young entrepreneur needs to know about accounting:
Accounting is the art of recording, classifying, and summarizing financial transactions of a business for presentation in reports useful for management decision-making. Accounting helps businesses keep track of the money flowing in and out of their company so they can manage their finances and make decisions effectively.
Understanding accounting is crucial to the success of your business. Without proper accounting, you won’t understand how much money is coming into and going out of your business. This will help you make better financial decisions that can help you grow as a business owner.
There are five basic accounting concepts that every entrepreneur should understand:
A financial statement is a report that provides an overview of a company's performance, which can help potential investors decide whether to invest in the company, as well as how much to invest. It includes the income statement, balance sheet and cash flow statement.
The income statement is also known as the profit and loss statement. This financial statement summarizes the income and expenses of a business over a period as well as its profitability.
It provides insights into how your business is doing, what revenue you are generating, what costs you have incurred and whether you are making money from your operations.
The Income Statement can be broken down into eight sections:
A balance sheet is a financial statement that details a business's assets, liabilities and equity at a specific point in time (usually the end of a fiscal year). It is also used to provide a snapshot of its financial position.
The cash flow statement provides an overview of how much money came in and went out in a given period. By tracking your cash flow, you can see whether you're making enough money to stay afloat financially, whether it's time to take out another loan or ask investors for more capital investments. It includes:
You must understand the cash flow of your business to make better decisions and find if there are any red flags that need immediate attention (like enormous amounts of debt).
The best thing you can do for yourself as a young entrepreneur is to learn accounting and to understand financial statements so that you can keep track of all your finances.
Not only will this help you avoid costly mistakes, but it’s also important for any young entrepreneur who wants to know how much money their company has in the bank and where it came from or went.
In short: if you don’t know where your money comes from or goes, then how can you possibly make good business decisions?
More than anything, developing your business requires your undivided attention. If your accounting duties are taking much of your time from your core activities, it’s time to get some help. One way is Outsourcing an Accountant.
This way they can take care of all your bookkeeping, auditing and accounting needs efficiently while leaving you with more time to do what matters most: growing your business. Talk with our financial experts now to learn which of our customized accounting services fits your requirements. Discover how you can succeed with outsourcing by getting a free copy of our guide Outsourcing: How to Make it Work.