Small Business Accounting Tools
- Small business owners often use several different accounting or financial tools for maintaining business operations. Accounting tools help business owners measure operational performance based on financial transactions. While many larger business organizations commonly use accounting information for business decisions and other purposes, small or home-based business owners can overlook this important information. Therefore, small business owners should attempt to implement a few accounting tools in their business operations.
- Financial statements are the primary accounting tool for many businesses. The most common financial statements are the income, balance sheet and cash flow statement. The income statement reports all sales revenues, cost of goods sold and expenses for a specific time period. The final result is the net income earned by business operations. Business owners use this information to determine how well their company is generating profit from business expenditures.
The balance sheet contains all assets, liabilities and owner’s equity owned or owed by the small business. Small businesses can calculate their economic value added using the information contained on the balance sheet. Economic value added represents the true wealth generated by a company and is usually a better indicator of a company’s financial health. This figure is usually calculated by subtracting the company’s total liabilities from total assets and adding back owner’s equity.
The cash flow statement lists all operations or functions responsible for cash inflows and cash outflows. Business owners use this statement to accurately track all cash flows related to business operations. - Accounting software allows small businesses to automate their accounting information processes. Smaller or home-based businesses may use financial spreadsheets to maintain accounting records. Spreadsheets are a low-cost option usually included with many basic personal computers and represent a simple option for creating financial reports and statements.
Small business owners can also implement official accounting software packages that provide several benefits for their business operations. Accounting software allows business owners to manually input information from financial transactions and automatically generate financial statements, ratios and other beneficial reports for reviewing financial business operations. - Small business owners should use a tax accountant to evaluate their financial operations relating to business tax liabilities. Most small businesses are allowed to pass business income through to the business owner’s personal income taxes. Pass-through taxation greatly benefits small business owners because business income is usually taxed at the owner’s lower personal rate rather than a higher business rate. Tax accountants can also provide business owners with other information related to small business deductions or credits that can help lower the business’ tax liability.