Beginning and Maintaining a Small Business - Part Three

Tracey Wilson
 


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In part two we covered the pros and cons of having a partner, and which decision is right for you, along with the needs of hiring professional help, and the different things professionals will be able to help you with. I know it can seem over-whelming, there's so much that needs to be considered opening a business. You want to make sure you're well educated in all of the varying needs where when you do open your business, you won't have any unpleasant surprises of getting closed down or fined for not having the correct permits and licenses.

Now you need the knowledge of your business's basic accounting and computer software needs. If you decide to bring in investors, or borrow money, your business will be judged by the classic financial measures the balance sheet, and the profit and loss statement as well as the cash flow statement contains. These three measurements will define the financial health of your company, and will determine if you are successful in achieving a loan or interesting investors.

The balance sheet tells how much the business is worth. The profit and loss statement tells if your business is profitable or not, and the cash flow statement predicts your cash balances into the future.

Before you start you will need to decide what form of accounting that your business will use. There are two major types: Cash Basis Method- you recognize income when you receive the cash and you recognize expense when you pay the bill.

Accrual Method- here you match revenue with expense regardless when the cash may or may not be collected. If you sell a product to a customer and he doesn't pay you for thirty days, the sale is recorded in the books on the day that you made the sale. When the money comes in the accounts receivable is then turned into cash. The same with expenses. Most businesses work on the cash basis method. You should set up a business account even if you're a sole proprietor. There will be a number of tax liability matters that you and your accountant will need to deal with income taxes and payroll taxes.

Quarterly returns are primarily payroll tax returns. Start-up businesses need to file quarterly payroll tax returns and send the money that has been withheld from the employee's check as well as the employer's share of social security taxes to the federal government.

Likewise, state income taxes that are withheld and state unemployment tax that the employers pay to the state must be accounted for.

Your bank account needs to be reconciled at least once a month when you receive your bank statement. You can save money by learning to do this yourself. Reconciliation refers to taking the balance in your checkbook and reconciling or mathematically comparing it to the bank balance. You must also take into account any difference in those two balances that are due to checks that you have written that have not yet cleared in the bank. It is important for the outstanding checks to get subtracted from the bank balance and the resulting number be compared to the number in your checkbook. When the two match, we say the account has been reconciled.

A written cash record keeping system for small and home-based business should be done weekly.

The balance sheet is a “point in time” statement. Think of it as a ‘snapshot': It's a listing of all of your assets as well as your liabilities and the difference between the two numbers is your equity in your business. It is divided into two major sections. The first section is “assets”. The second is “liabilities and owner's equity. ” One reason it is called a balance sheet is that assets always equal your liabilities and owner's equity. This is called double-entry bookkeeping. It serves as a check to make sure a transaction has been properly recorded.

The income statement, unlike the balance sheet, covers a period of time, usually monthly or quarterly. Usually year-to-date figures are also represented to show how the business is doing during the current accounts year. The income statement and balance sheet tie together. Look back on the balance sheet and you'll see current earnings match the income statement.

Computer programs can produce financial statements with a single click of a key, which is why you need to learn the computer skills and software that is appropriate for your particular business.

Most software has it so all you have to do is answer the questions with your figures, and it does the hard part for you. Staying current on all of your earnings and pay-outs is extremely important to the success and in building equity in your business.

This article has been submitted in affiliation with http://www.Facsimile.Com/ which is a site for Fax Machines .

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