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Business Financial Recordkeeping
Many
small businesses often run into trouble because there is not a good
record keeping system in place. The home based entrepreneur
is frequently someone with a passion for his or her products or
services, enjoys meeting new people, considers marketing to be a
challenge�.and would prefer torture rather than spend valuable time
tracking revenues and expenses.
But if
you don�t keep good financial records, you have no way of knowing how
your marketing and sales efforts are doing and if you are keeping your
expenses under control. In addition, the government has a
variety of reporting requirements you must meet. Everyone
must file annual tax returns, but if you decide to add one or more
employees as your business grows, there are additional reports you must
file on a quarterly basis.
On the
list of important reasons given for why home businesses fail is lack of
good accounting records. If you don�t know how you are doing
financially, how are you going to know if you are on track?
How do you know if your business plan is sound? How are you
going to know whether you need to change your marketing strategies,
make price changes, or reduce expenses?
In other
words, you need to see your bookkeeping system as a management tool
that can provide you with the signposts you need for determining what
path to take towards success.
USING
RECORD KEEPING SOFTWARE
You have
a choice of bookkeeping methods. You can keep manual records
or computerized records. Most people today use bookkeeping or
accounting software to track business records. There are a
number of options available that range from simple revenue and expense
bookkeeping to complex multi-department accounting that is integrated
with sales and inventory programs.
The
difference between bookkeeping and accounting is one of
degree. Bookkeeping software is a basic system for recording
primarily cash sales and expense figures. It is quite
possible that your bank offers a bookkeeping system based on your
checking account activity. You can download your deposits and
check information right into the record keeping system. When
it is time to prepare the tax return, the accountant will use the
bookkeeping records as the basis for preparation of the required
business forms.
An
accounting system, on the other hand, is designed to handle either cash
or accrual record keeping. It also has the necessary features
to create entries for tax accounting purposes such as depreciation or
inventory records.
The kind
of financial record keeping system you choose depends on the complexity
of your business. If you operate a simple business
selling one particular set of products, do mostly drop-shipping for
order fulfillment, and operate on a cash basis, a bookkeeping system
will work quite nicely. If you maintain an inventory in your
home, operate on an accrual basis, have employees and sell a variety of
products and services, you should obtain accounting software.
The Windows based software that is available
today is very user friendly. You may dread the thought of
keeping financial records, but today�s software is built for people
just like you. The software can streamline the entire record
keeping process.
One
important point to keep in mind though is this: you can only
be a better manager in your home business if you create a streamlined
system of records flow. You need to maintain a good filing
system both on and offline. You will need to keep backup
paperwork for your sales and expense figures which prove the entries
made in the bookkeeping and accounting systems are accurate.
But you also need to have a good online method of filing
correspondence, email inquiries, order fulfillments and invoices sent
through the internet.
FINANCIAL
STATEMENTS
When you
say �financial statements�, it seems to imply big corporations with an
army of accountants preparing formal reports and making complicated
entries. But even the smallest home based business needs to
produce management reports and financial statements which give a clear
picture of how the business is doing.
Both
bookkeeping and accounting systems produce financial statements either
on a cash or accrual basis depending on the kind of program you
use. Financial statements should provide useful information
that you can use to judge your business progress and to make future
financial decisions. If you buy a good bookkeeping or
accounting system, the program will probably also generate management
reports such as customer data and inventory analysis reports.
The key
to successful financial management of your home business is to use the
information you have available. Some people wait until the
end of the year and then desperately try to input a year�s worth of
data. They are really short changing themselves when they
handle the financial aspects of the business in this manner.
It means they are not using their management reports as decision making
tools throughout the year.
There are
many types of record keeping software packages for sale. They
range in prices from as low as $40 to hundreds or even thousands of
dollars. Before you buy one it is best to do some research
and talk to others who have actually used the systems. But
whatever you choose to buy, it is important the system be expandable in
the future to accommodate your business growth.
What this means is that if you buy a basic
system for cash bookkeeping, it should be upgradeable in the future
with the addition of modules if you so choose. Or the data in
the basic system should be convertible to another more sophisticated
version or even another software package. You don�t want to
have to recreate your accounting system down the road after your
business expands.
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