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How to Manage a
Small Business or Start One
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Starting a
small business is easy! Making a profit is hard! That is why the financial
management of your small business is critical to your success.
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Statistics indicate that 70% of all
start-ups collapse within three years.
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Many entrepreneurs are very able-bodied technicians
but have difficulty in handling the myriad of other tasks. Consider the
following:
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Quoting
the work, ordering materials, invoicing, banking, paying bills, record keeping
systems, filing, meetings, advertising, paying taxes and doing the work of the
business.
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Business
is usually only as strong as the weakest department or function. When you have
to do it all, there may be many weaknesses. Consider the following functions:
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Sales/Marketing
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Production
or Operations
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Human Resources
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Finance & Accounting
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Information Systems.
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One of the primary reasons for small
business failure is the lack of adequate financial accounting systems.
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What
is an adequate financial accounting system? It is a system that will provide, at
a minimum, on a timely and accurate basis, the following:
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Balance Sheet
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Profit & Loss Statement (also called Statement of
Operations)
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Statement of Cash Flows
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Accounts Receivable Ageing report
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Accounts Payable Ageing report
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Financial
Reports usually fall into three broad categories:
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Internal Reports-used for decision making,
they include the above reports and also, Sales Reports, Inventory Reports, Cost
Reports, Fixed Asset reports and many other;
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Tax Reports are required for Federal, State
and Local and include Income Tax Returns, Single Business Returns, Local Income
Tax Returns, Property Tax Returns, Sales Taxes and other taxes and
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External Reports are used by bankers,
investors, to attract key employees, and for many other purposes.
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The
primary reasons for business failure are:
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Business Planning
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Financial Management.
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Financial
Reports you need to run your business successfully:
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The Balance Sheet
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Assets-Things that you own: cash, accounts
receivable, inventory, fixed assets, intangibles and other assets;
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Liabilities-Things that you owe to
outsiders-notes payable, accounts payable, accrued liabilities, long term debt
and other liabilities;
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Equity-What the business owes the owners:
money that is paid in earned (Retained Earnings) and is free and clear from
creditors claims (the book value of the business).
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The basic accounting equations is: Assets =
Liabilities + Equity
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The
Income Statement
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Is also called the profit and loss or
statement of operations
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It is commonly divided into two sections:
the operating and the non-operating sections;
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The operating section includes Revenue, Cost
of Goods Sold, Gross Profit Margin, Operating expenses and Income before
non-operating items;
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The Non-operating sections include interest
expense and income, and income tax expense (if appropriate).
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The income statement measures the company’s
ability to generate sales, control costs and expenses and make a profit;
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Each year the net income (loss) of the
business is closed out to Retained Earnings and becomes part of the Owner’s
Equity.
There
are many software programs that are available to assist you in running your
business effectively:
It’s easy to get into business and it’s just
as easy to fail. Running a successful business is process not an event. As a
process it is a function of creating perhaps your largest asset, and your future
retirement, and also providing for your families financial security. You can’t
run a successful business without effective financial management.
Contact Carolan & Associates Today!
516 S. Creyts Road, Suite E
Lansing, MI 48917
517-321-4333
517-321-4307 (fax)
Email:
Info@CarolanCPAS.Com
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