Bookkeeping for Small Businesses

Posted on August 18, 2015

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Know How Banks View Your Company

bookkeeping for small businessesIf you own a small business, you may feel as if you are always on a steep learning curve when trying to manage your growing company. Bookkeeping for small businesses is often kept in-house, and typically done by you, the owner. While wearing so many hats, how can you maintain healthy financial management of your company?

When a company is new, bookkeeping tasks often center on your current bank balance or other immediate concerns. However, as you grow, overall financial health should take center stage. The time will come when you need to purchase equipment or establish a new location, and you will need to prove your viability as a business. You need to be able to see your business through the eyes of a banker, who will make decisions based on hard figures.

Banks use your financial statements to evaluate your fiscal stability. The balance sheet measures your company’s assets, liabilities and capital, up to a certain date. The balance sheet provides a track record to show how your company has been doing.

Banks often want to see your profit and loss statement. This report shows your expenses, your earnings and whether you experienced a net profit or loss for a specific time period. The P&L is a critical statement because it shows the overall profitability of your company.

The third statement frequently requested by banks to make decisions about a loan for your business is the cash flow statement. As the name implies, the cash flow statement documents the money going in and out of your company. It is often considered the most important statement for making loan decisions because it shows how easily your company could pay off its debt and interest at a specific moment in time. Even if the P&L shows a strong net income, much of this money could be tied up in accounts receivable. The bank is primarily interested in the amount of cash a company can access if needed.

One way to be sure that business is ready for an in-depth analysis of your financial statements is by completing timely financial statements each period. This makes it easier for you, as the business owner, to make sound financial decisions that protect the health of your business. Bookkeeping for small businesses has a tendency to get pushed aside by more pressing issues, but as your company grows, it is vital to prioritize sound bookkeeping and report processes.

To ensure that your small business is maintaining accurate financial records that promote the growth of your business, give AccuBiz a call. We offer a range of accounting services, from handling monthly reports to full-service accounting. We invite you to sit down with us for an initial consultation to see how we might help promote the financial health of your business.

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Posted in: Bookkeeping