Understanding Accounting for your Businesses: A Green Light for Success

By now you should have a little better understanding of the accounting process, some of the more important parts, and a glimmer of hope in your ability to perform the bookkeeping requirements. Okay I’m kidding, you don’t have a clue about the bookkeeping function; you just simply want to keep better tabs on your accountant!

Well, let me be the first to say, there can be no harm in more knowledge. The more you, as a business owner, understand about the status of your business, the more likely your business to succeed. A clear understanding of the financial information available to you about your business will help you to be a better business owner. Financial information about your business is available through the use of the Profit and Loss Statement, a Statement of Cash Flows, and a Standard Balance Sheet. Each report provides a certain view of your businesses health. Put them all together, and they provide a brief “snapshot” of the business for any given point in time.

Areas such as employee theft, vendor theft, rising cost of goods, or exceeding established purchasing budgets are items that slip by an owner’s attention unless he or she can find a way to review a summarized, but brief, recap, and compare month-to-month figures. When a business owner uses all the financial statements generated at month end, he has all the information in hand to review these potentially large abuses.

When you make business decisions based on gut feelings, ignorance, or fear, your business suffers. On the other hand, if you make business decisions based on facts and figures that you understand, you are going to grow your business.

Some of the first items that a lending institution will request are Business Plans, current year Financial Statements, and prior year tax returns. Lenders want to know about the financial health of your business, and where you plan to take your business. What is your direction for the next several years? Will your business be able to support the plans you’ve made? Who are you marketing your business to? Why? What does your past sales, expenses, and labor requirements say about your current customers demands? All of these questions are answered with the documents referenced above. Of those documents, the Financial Statements will provide the clearest, most current picture about the health of your business.

Just as x-rays allow doctors to see inside a patient, financial statements provide owners, accountants, and lending institutions a way to see inside a business. If you are aware of your businesses health, and know how to read and interpret the financial documents, you’re ready to promote your business. You can anticipate lenders’ questions before they’re asked.

Healthy, flourishing businesses are an asset to the owner, the community, and to the state at large. These businesses provide jobs, taxes, and needed products or services to the communities where they are located. They also serve to provide proof that free enterprise and competition are the best bedfellows a business owner can have. So, the next time you seek funding for expansion, or investors to buy into your business, let them know your business has the green light for success-great health!

Categories Accounting

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