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Finance and Accounting Skills Every Entrepreneur Needs

November 16, 2022

Finance and accounting are important skills for a business owner in this day and age. Keeping up to date with the financial performance of the company is critical. This is important as it will ensure that the business continues to operate successfully.

Business owners need to know about all the aspects of the financial health of a company. Financial and accounting information can have severe implications for a business as they are the basis of long term business decisions.

In this blog post, you will learn about some of the essential financial and accounting skills that every business owner must possess.

Accounting Methods

Businesses can select different accounting methods for outsource bookkeeping services. The bookkeeping entries can be made through either on cash or accrual basis.

The cash basis of accounting involves recording income and expenses when cash payment is received or made.

The accrual-based accounting is different in that the income and expenses are recorded at the time they are incurred. This accounting method involves double entries for each transaction. The accounting method involves more effort and time as compared to cash-based accounting methods. But the method results in a more accurate portrayal of the financial position of a company since the expenses are matched with the revenues.

Most businesses select accrual-based accounting. But businesses that don’t deal with credit sales and purchases can opt for cash-based accounting method as it’s simpler to implement.

Financial Accounting Terms and Standards

Business owners should also know about the common accounting terms to better understand the financial position of the company. It is also important to know about the generally accepted accounting principles (GAAP).

Debits and credit entries have to meet certain requirements. For instance, a credit entry is made in case of an increase of assets and expenses. In contrast, a debit entry is made in case of an increase in liability or income.

General entries must also be made based on certain accounting principles. An example is the principle of conservatism. According to these principles, bookkeepers must recognize all expenses once they become known. On the other hand, accountants must recognize income only when they are certain.

Another application of the accounting principle of conservatism is selecting higher amounts for expenses that are not certain. In contrast, accountants must recognize lower amounts for uncertain revenues.

Management Accounting Terms

Business owners should also understand financial terms to better understand the management accounting terms. Some of the important management accounting terms include the following.

  • Cost allocation
  • Budget
  • Forecasting
  • Cost volume profit analysis
  • Break even analysis
  • Net present value
  • Internal rate of return

Management accounting is different from financial accounting in that it involves terms that are used for business decision making. The management accounting involves analysis and projection of financial performance as opposed to record of financial transactions.

Accounting Software

Business owners must also become acquainted with the accounting software. Most outsource bookkeeping providers use accounting software for recording income and expenses.

You need to understand how to generate reports using the accounting software. It is important to know what type of reports that can be generated using the software. Also, you should know about how to know the balance of different ledger accounts.

Some of the common accounting software that outsource bookkeeping providers use include QuickBooks, Xero, FreshBooks, and Manager.io. You must know the working of the accounting software used by your bookkeeper to know how to generate the required reports for understanding the financial performance of your company.

Tax Skills

Submitting taxes is important for everyone that earns an income. Salaried and self-employed individuals, small business owners, and corporations all must submit taxes.

You should understand the PAYE system that automatically deducts employees’ taxes. In addition, you should also know about how to use the self-assessment system for paying income tax.

Business owners should also know about the allowed deductions that can lower the tax bill. It is also important to know about the forms required for submitting tax by different types of businesses.

Timely filing of tax returns is important to ensure that you don’t incur a penalty. It is critical that the taxes are filed withing the due date since the penalty for late filing of taxes can take a significant chunk out of the profit.

You must consider filing taxes early to ensure that the tax return form is submitted within the deadline set by the IRS. It is important to work with your outsource bookkeeping provider to know about the income and expense amount that must be reported in the income statement.

Staying up to date with the tax regulations is also important to ensure compliance. You must make sure that you avail allowable deductions to lower the tax bill.

Get an Understanding of GAAP

Business owners need to have an understanding of the Generally Accepted Accounting Principles (GAAP). The accounting standards were introduced by the Financial Accounting Standards Board (FASB) to achieve consistency in presenting accounting information.

GAAP standards must be followed by all types of businesses in the US. You should have a basic understanding of all the accounting principles that must be followed when preparing accounting reports.

Conclusion

Business owners need to understand basic and advanced accounting and financial terms. It is important to develop accounting and financial skills to better understand the financial performance of your company.

Successful business owners keep a close watch on the financial performance of a company. It is important to know about key accounting metrics that can help in gauging the financial performance.

You need to work with the outsource bookkeeping provider to know about the financial health for your company. You should be able to evaluate the financial data regarding your company and make effective business decisions.

Maxim Liberty is a reliable outsource bookkeeping service partner. Our team of highly experienced accountants can record business expenses as per the relevant accounting standards and principles. We use the latest accounting software that helps ensure accurate and timely record of all financial information. You can contact us by dialing (703) 957-6938.

Maxim Liberty is a leading bookkeeping company with over 10 years of experience helping small businesses manage their finances. Passionate about making bookkeeping simple and stress-free, we share practical tips and insights.