If you are an entrepreneur, you probably wear many hats within your business. However, financial accounting is an essential skill set that will ensure the success of your organization. The primary skills needed in accounting for entrepreneurs are financial projecting, accounts payable and receivable, bookkeeping, cash-flow management, fiscal and expense reporting, tax filing, payroll, banking, and credit management.
Accounting 101- The Basics
Accounting refers to the measurement, complete recording, and communication of all financial aspects within a business. There are many different types of accounting, including:
- financial accounting
- small business accounting
- cost accounting
- public accounting
- governmental accounting
- forensic accounting
- tax and audit accounting
- management accounting
Why are Accounting Skills Essential?
As a new entrepreneur, you have the power to set your business up for financial success by sharpening your business accounting skills. Proper accounting can help you understand your company’s financial strength, make accurate future projections, and ease the strain of tax season. Becoming knowledgeable in accounting can assist business owners with everyday financial requirements, including:
- Determining Current and Future Profitability
- Creating Synergy and Enhancing Financial Communication
- Setting Goals and Tracking Progress
- Financial Organization and Compliance
- Improving Borrowing, Negotiation, and Resource Allocation
- Expert Insight and Marketing Strategies
Accounting Tips for Entrepreneurs
Educating yourself on bookkeeping allows you to accurately understand and report the stream of revenues and accrued expenses from your business. Learning how to manage a business accounting book will equip you with the knowledge to predict exactly where the business stands budget-wise. Being aware when you are over or underspending will significantly improve operations and the knowledge of cost analysis will allow your business to make better projections for future growth.
It’s crucial to have up-to-date and accurate accounting books because lenders, creditors, and investors typically show interest in the financial health of potential business investments. Proving your financial status will establish a better sense of your creditworthiness for lenders.
To calculate income and expense figures, you’ll need to maintain clear and upstanding financial records of invoices and receipts. Learning to classify the entries into different categories is essential in calculating your profit and losses. Proactively learning classification and data-entry skills will ensure bookkeeping organization and that you can promptly locate past records.
Regarding legal compliance, it’s essential to know that financial laws and regulations vary nationwide depending on your location. Learning these laws and correctly balancing your company’s books can ensure that you remain federally and locally compliant to avoid IRS penalties and hefty fines.
Types of Accounting
For entrepreneurs, there are two primary options for accounting methods and you’ll want to be confident in the process that works for you before beginning to accrue expenses and earn revenue. Once your company’s approach is established, you’ll want to consistently use the selected process for a smoother tax season. The two types of accounting methods are:
Accrual-Basis Accounting: Using this method, you record revenue and expenses as incurred rather than during the currency exchange. It can provide you with a better picture of your business’s overall income versus costs.
Cash-Basis Accounting: Cash accounting is very straightforward. Revenue is recorded when you receive it, and your bookkeeping will recognize expenses when they are paid. It’s the most commonly used method among new entrepreneurs because of its simplicity.
Entrepreneurial Accounting Statistics
Here are a few of the latest statistics regarding accounting skills and small business owners:
- 60% of small business owners are not confident in their accounting knowledge.
- The cost of a small business accountant ranges from $20 and $100 per hour.
- 64.4 % of small-business owners utilize accounting software.
- 36% of small businesses have timeline problems, 32% don’t receive adequate guidance, 29% want more advice from their accountants, and 23.6% seek more education from their accountants.
- An organization usually loses approximately 5% of its revenues yearly.
- Self-employed people typically handle 75% of their own accounting needs.
- An average of 22.5% of small businesses fail within their first year
Seeking Professional Help
Whether you’re weighing the odds of starting your own business or have already jumped into the world of entrepreneurship, expanding your accounting skills can assist you in reaching and surpassing your goals. Taking an online course focused on financial accounting and entrepreneurship essentials is a wise option for learning the skills for success.
Is your ultimate goal to take your business to a higher level? Consider investing in an accounting book like How Much Does it Cost to Make a Donut to learn more about enhancing your accounting knowledge to positively impact your company and gain a competitive edge within your industry.
Final Thoughts
While excellent accounting for entrepreneurs is essential, it can be pointless if your business values aren’t strong enough to build and keep a satisfied clientele. However, ensuring that your team has vital accounting competence will allow you to focus on improving your business. Establishing a solid accounting foundation will also help you become a better decision-maker to avoid financial mistakes along the way, giving you an edge over competitors who did not polish their accounting skills.
It’s essential to remember to keep your financial records organized and accurate and don’t be afraid to seek professional help when needed. This will help you maintain control over your organization’s financial health, and it will provide you with peace of mind, knowing that you and your team are ready for whatever challenges your business may face.