Posted on August 3rd, 2023

Hello, dear friends! Welcome back to Salem Endeavors' blog, your go-to source for insights into the vast world of business management. Based out of Katy, Texas, we're here to offer our expertise in business consulting, coaching, and many other services that can help your enterprise flourish. 

This time, we've decided to tackle a topic that might seem intimidating but is absolutely crucial for any business – accounting, specifically, accounting for small businesses.

In the great state of Texas, where the entrepreneurial spirit is as big as the state itself, numerous small businesses are thriving, and we bet yours is one of them. But along with the thrill of running your own business comes the responsibility of managing your accounts. No matter how small your venture, small business accounting is a key aspect that can determine your enterprise's success.

In this post, we will guide you through the fundamentals of accounting for small business owners. We'll explain terms like 'Commission', 'Audit' & 'Reconciliation', 'Profit & Loss', 'Balance Sheet', and 'Cash Flow'. We’ll also discuss if your expenses like payroll and rent are comparable to others in your industry and how to ensure you are receiving all that you're due, and paying only what you should. 

So, buckle up and let's dive right into it!

Commission, Audit, and Reconciliation: The Trio of Accounting Basics

The first aspect of small business accounting that we'll cover is understanding the basics - Commission, Audit, and Reconciliation.

The Commission in business generally refers to the compensation paid to a salesperson or agent for the services rendered. It's crucial to track these accurately in your accounting books, as it directly affects your business's expenses and tax liabilities.

The Audit process involves a thorough examination of your business’s financial statements by an external body, ensuring that all financial records are valid and reliable. Regular audits help maintain your business's integrity and can reveal if there are any discrepancies or fraudulent activities.

Reconciliation, on the other hand, is the process of ensuring that two sets of records are in agreement. It’s a vital task for avoiding balance sheet errors, identifying fraud, and ensuring financial transparency. This process can also help you understand whether you’re receiving all that you’re supposed to receive and paying only what you’re supposed to pay.

Expenses: The Pillars of Cost Control

For small businesses, managing expenses is critical. Costs such as Payroll, Rent, Utilities, Taxes, etc., are unavoidable. However, the goal is to ensure these costs do not escalate unnecessarily.

It's natural to wonder if your expenses are in line with others in the industry. Regular industry comparison analysis can help. If your costs are significantly higher than similar businesses, it might be time to dig deeper and identify potential areas of cost reduction. Conversely, if your expenses are much lower, you might be underinvesting in crucial areas of your business, which could hamper growth.

Regular expense audits can help ensure that you are only paying what you are supposed to pay, avoiding unnecessary or fraudulent expenses.

True Company Financials: More Than Just Numbers

Understanding your business's true financials is crucial to make informed decisions and plan for future growth. This involves assessing various aspects like revenue, expenses, assets, liabilities, and equity.

One critical consideration in accounting for small businesses is ensuring you are receiving all the revenue you're supposed to. This means tracking all transactions, invoices, and payments meticulously. Any discrepancy can affect your profitability and cash flow. Regular revenue audits and reconciliation processes can prevent such issues.

Apart from revenue, knowing your business’s expenses, assets, and liabilities is equally important. Regularly updating and reviewing these will help you understand your business's financial health and position it for steady growth.

Profit & Loss by Month: A Snapshot of Your Performance

Profit and Loss (P&L) statements give you a snapshot of your company's financial performance over a specific period. Monthly P&L statements are especially useful for small business accounting because they can help identify trends, seasonality, and other business patterns.

Your P&L statement will show your revenues, costs, and expenses during a particular month. Subtracting the total costs and expenses from the total revenue will give you the net profit or loss. Consistently monitoring your P&L will help you adjust your strategies as required and make better financial decisions.

Balance Sheet and Cash Flow: The Health Indicators of Your Business

The Balance Sheet and Cash Flow Statement are two other important financial statements in small business accounting.

The Balance Sheet provides a snapshot of your business’s financial position at a specific point in time. It lists all your assets, liabilities, and equity. This statement can help you understand your business’s value and potential financial risks.

On the other hand, the Cash Flow Statement shows how changes in the Balance Sheet and income affect cash and cash equivalents. It essentially tells you where your money is coming from (cash inflows) and where it's going (cash outflows). Maintaining a positive cash flow is vital for your business's survival and growth.

Accounting for Small Businesses: Get Professional Help

We hope this post has helped you understand the basics of how to do accounting for small businesses. However, we understand that accounting can still seem daunting, especially if you’re a new business owner or if your business is growing rapidly.

But don’t worry, you’re not alone. At Salem Endeavors, we provide comprehensive business consulting and coaching services. 

We offer free introductory consultations , human resources and recruiting services, executive head hunting, and even small business accounting services to help your business thrive.

If you're still unsure or need any assistance with your accounting, reach out to us at (346) 436-7433 or send us an email at [email protected]. Whether it's to answer a quick question or to schedule a call to find out if we're the right fit, we’re here to help. Remember, we've helped numerous business owners and executives streamline their processes. 

Your journey to successful small business accounting in Texas might be just a phone call or email away!