The terms “accounting” or “financial analysis” are often dull enough to put business owners to sleep or frightening enough to send them screaming from a room. In reality, managing company finances can be among the least sexy components of starting your own business; however, establishing methodical and accurate financial habits now will only reap success for your company in the future. Similar to the progression of college math classes, accounting practices only become more complex and varied as your business advances. In order to establish a secure financial foundation that allows your business to grow, keep the following tips in mind for your entrepreneurial ventures.
New business owners often forget that borrowed money must be accounted for before when considering profitability. To fund startup assets such as buildings and equipment, borrowing money is common practice; forgetting to account for the money used to acquire those assets, unfortunately, is common practice as well. Although having more equipment to increase revenues may seem profitable, failing to analyze the value of equipment compared to the revenue can cause confusion and an inaccurate interpretation of your company’s finances. Taking the time to understand your debt-to-profit ratio in the early stages of your business will help maintain that ratio as your company transforms from a small to medium-sized business.
Although it may seem mundane, tracking your company’s breakeven point from the start is crucial to creating a sound financial foundation. Take advantage of the small number of transactions when your doors first open to understand your breakeven analysis thoroughly. By doing so, you’ll have a more comprehensive understanding of the analysis when revenues and expenses begin to increase. All too often small business owners find tracking their breakeven point unnecessary during the first stages of business; when business increases, they find themselves too confused to establish a breakeven analysis, resulting in financial pandemonium.
Company accounting tends to snowball as business grows. Practices that at first appear easy to understand often become more complex over time as assets, debt, transactions and profits increase. Establishing a strong financial foundation during the first months of business is crucial to maintaining financial literacy and achieving success. While VAST welcomes clients throughout all stages of their business’s life cycle, it’s never too early to start building your company’s financial foundation for success.
Small Business Accounting and much, much more ...
VAST offers small business accounting as well as many higher level accounting services for larger businesses. To find out which of our products are best to set your business up for success, visit our products page.