Accounting 101 for Small Business

Accounting 101 for Small Business

I was recently reminded that many small businesses are not equipped to handle the very rudimentary accounting functions required to be successful. I see this annually as I prepare tax returns for friends and family. I am a C.P.A. by profession and training, but spent most of my career in executive positions with large corporations.

Although “QuickBooks” is the “Gold Standard” for record keeping, these small businesses don’t understand debits and credits, income and expenses and assets and liabilities. As a result, trying to get the basic information to prepare a tax return is challenging, at the most. I have tried to prepare journal entries to correct their records, but have found that this is a “bridge too far.” As a result, I take information from their records, and then have columns for corrections, to arrive at the final result. I prepare financial statements, and cash flow analysis, and try to educate them, as best as possible, in their operations from a financial perspective.

Many of these small businesses are LLC’s or Sub-Chapter S Corporations. However, the owners don’t fully understand the meaning of those entities. They just know that someone recommend that they set up their business in that manner. They also don’t understand that setting up budgets for their operation could be helpful. As a result, many fail when they don’t need to.

They also don’t understand payroll taxes, and payroll in general. It is important that employees be properly categorized, and payroll returns be filed on time, and with the proper organizations.

A number of years ago, I gave a talk at a meeting of sporthorse farm owners in Virginia. The purpose was to try to relate to them the necessity of proper record keeping. I don’t think there has been any follow up by the organization that set the meeting up, and I doubt that there has been any improvement in their members record keeping.

Small business owners don’t need to be accountants but they do need to understand the basics that will allow them to be successful in their venture.

There are many “bookkeeping” organizations that will keep the financial records for a small business. However, many of them don’t understand everything that they should, and they aren’t able to provide meaningful information to their clients.

What is the answer? There is no “silver bullet.” Trade organizations could do a better job in educating their members about financial management. Small business owners could take a basic accounting course at their local community college or online. If they use a bookkeeping service, make sure that they are qualified and are able to provide meaningful reports to the business.

Small businesses should also make sure that their tax preparer is competent and able to provide meaningful information to them concerning their business operation.

Success isn’t easy. It is a “journey.”

Jess Sweely

Madison, Va.

March 8, 2024

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