Essentials for New Business Owners: Understanding Accounting Basics

Starting a business is an exciting journey, but it can also be overwhelming. Especially when it comes to accounting. Often, business owners feel like they need to be accounting gurus before they even start, but this couldn't be further from the truth. Here’s everything a new business owner needs to know about accounting.

Accounting Basics for Small Businesses

At its core, accounting in a business setting revolves around just two basic elements: Assets and Liabilities. Assets are things you own, such as property, cash, inventory, and equipment. Liabilities are what you owe, like loans, accounts payable, and other debts. Subtract liabilities from assets, and you get Owner’s Equity, which essentially shows the net worth or value of your business. Understanding these core concepts is sufficient for most small business owners.

It’s important to understand the basics, but it’s equally crucial to know that you don’t need to have advanced knowledge to run a business successfully. Professional accounting is always key, and that doesn’t necessarily mean you have to do it yourself.

The Role of an Accountant in Your Business

As a business owner, having a professional accountant is invaluable. They’re not just there to handle the numbers; they can also provide invaluable insights and guidance. Don't let the fear of not knowing accounting deter you from starting your business. Many business owners, like myself, are hopeless when it comes to accounting, but that’s okay. Surrounding yourself with the right people can make all the difference.

Talking to an Accountant

Legal Forms: Your accountant will guide you through the different legal forms your business can take, such as a C Corporation, S Corporation, LLC, Sole Proprietorship, General Partnership, or Limited Partnership. Each has its own advantages and disadvantages, and an accountant will help you choose the best form for your specific business. Designing an Accounting System: Your accountant will work with you to design an accounting system tailored to your specific needs. This system will be unique to your business and will help you manage your finances effectively. Hiring a Bookkeeper: Not every business owner can or needs to manage every aspect of accounting themselves. An accountant can help you find a reliable bookkeeper or recommend a service that can handle it for you, ensuring accuracy and efficiency. Information Resource and Counselor: Beyond just Numbers, an accountant can be a resource and a counselor. They can advise you on financial decisions and help you plan for the future.

Steps to Find the Right Accountant

1. Community College Courses: Enroll in accounting courses at a local community college to gain more knowledge. Starting with basic first and second semester courses can provide you with the foundational skills you need. Additionally, keeping your own books and staying vigilant about your financials is crucial.

2. Professional Relationships: For more advanced guidance, work with a Certified Public Accountant (CPA) or a certified tax preparer. They can not only provide you with services but also ensure your peace of mind, especially if your business is audited.

3. Legal Protection: Always have a lawyer on standby for contract reviews. Even if you don’t need to pay a large retainer, it’s wise to have a lawyer review any contracts, especially if you live in a state where specific legislation, like the UCC, plays a crucial role.

Key Advice for Business Owners

Initial Cash Reserves: Planning for a cash reserve to start up your business is essential. Ensure you have sufficient funds to cover initial expenses. Monitor Finances Closely: Keep a close eye on your financials, both the income and expenses. Regularly review and share your books to get a clear picture of your business's health. User Feedback: Listen to your accountant and address their concerns and suggestions each year. Don’t be afraid to ask questions and seek their advice. Exit Strategies: Don’t hesitate to pull the plug on a business that's consistently losing money. Financial health is paramount.

Starting a business is a significant investment, both financially and emotionally. By understanding the basics of accounting and having the right professionals by your side, you can ensure your business succeeds and grows.