When it comes to small business accounting, most people know it’s important to keep your records updated for taxes. However, there are many more benefits from small business accounting you can use to grow, improve and expand your business. Here are some of the most important account reports for your small business you should know about.
|Profit and loss statement/income statement||
The most important report for any business is the profit and loss statement, also called a P&L or income statement. This report tells you how much money a business makes, as well as a lot more. A well-run bookkeeping operation includes details for where you spend and where your money comes from. For example, by looking at your P&L for a quick summary of how much you make on one product or service to the next, how much you spend on travel, and how much you spend on equipment. Each business would have different accounts for its own income and spending categories.
Small business owners should look at this report at least monthly. It’s also a good idea to look at trends, comparing current results to the same period in the prior year and comparing the most recent month with the last few months. This should tell you what’s working well and what isn’t, as well as help you focus on the most profitable parts of the business.
A balance sheet gives you a snapshot of what a business has and owes at any given time. For small businesses, assets typically include things like bank accounts, account receivables, and possibly an investment account. A balance sheet may also include assets like property, computers, equipment and other saleable physical and intangible property. Liabilities generally include things like credit cards, business loans, and anything else your business owes.
The accounting equation is based on the balance sheet. It tells us that assets plus liabilities equals equity. The difference in what you have and what you owe should ideally be a positive number and one that grows over time.
When examining the balance sheet, also look at the short-term assets versus short-term liabilities. If you have payments owed soon, you won’t want to run out of cash without noticing your assets are liquid.
|Accounts receivable aging||
You don’t work for free, and your business isn’t a charity. Doing the work and sending the invoice is just part of the battle. You also have to make sure those payments get paid and collected. Your accounts receivable (A/R) aging reports tell you how well you’re doing on the collections side. Look out for customers who are perpetually late, usually pay on time and recently started paying late, and growing late balances from any customer.
Upstanding companies pay quickly. Some less stable, less trustworthy or financially strained companies are more likely to pay late or stiff you when it comes time to pay the bill.
|Revenue by customer||
Just as you should be looking at who owes you money, you should be looking at who gives you the most of it. Your revenue by customer report tells you how much you made from each customer over a period of time. Freelances and professional service businesses rely heavily on repeat business in many industries. Building good relationships with quality clients can turn into a lucrative, reliable, and healthy income stream.
However, beware of putting too much faith in any one income source. If too much revenue comes form one source, that’s called “revenue concentration risk”. If one client leaving would ruin your entire business, you need to get more diverse in who your business serves. Putting too many eggs in one basket might just bankrupt your company.
|Accounts payable aging||
You probably wouldn’t like it if a company took too long to pay you. Do your vendors a favor and pay them on time as well. You’re A/P aging report tells you who you owe and how much. As long as your books are updated, you can easily look and find who you need to pay so you don’t miss the due dates.
Paying late can sour relationships and may lead to late fees and other costs. Just pay on time. You might even get an early payment discount from some vendors. That’s a big win-win!