Small Business Accounting - How to Keep Good Business Records

Balance Sheet provides only cash balance at the end of each accounting period and no details how this balance was gathered are provided. That is why Cash Flows Statement is very important since it provides details how cash balance changed over the accounting period and what were the main reasons for such change.

This statement has three main parts which specify changes in cash into main types which are called activities. These parts are:

1. Operating Activities - inflows or spending related to the main activities of the business (i.e. sales of goods, provision of services)


2. Investing Activities - inflows or spending related to the investing activities (i.e. sale or purchase of plant assets and other non-current assets)


3. Financing Activities - inflows or spending related to the financing activities (i.e. receipt or repayment of loans, payment of dividends)

Practical Insights

From practical point of view it is necessary that business generates sufficient cash from its main activities, therefore Operating Activities part is very important. If the balance in this part is negative, the business for the accounting period was not able to general sufficient cash from its main activities and most probably business operations were financed by cash received from investing or financing activities.

Such situation cannot last long, since business cannot be viable if it generates cash from receipt of loans (financing activities) or sale of plant assets (investing activities). All these aspects can be seen from the Statement Of Cash Flows.

Small business accounting services offer a cost effective way to keep your company's financial information up to date, track your assets and expenses, and remain tax compliant year after year. While at a glance, the cost for contracting an accounting service seems high, you should take the time to consider the cost of not using one.

A Necessary Service

Unless you are an accountant, you, as a small business owner, do not have the expertise to manage your own financial statements and reports. If you are an accountant, you do not have the time to manage these tasks because it takes you away from your most important responsibilities, which are those that are directly related to generating revenue. However, your accounting is not an administrative task that can safely be swept under a rug; your books, balances, and financial reports must be kept up to date for the sake of the health of your company.

Your Options

With this in mind, you have a few options; you can hire someone, you can do your own accounting, or you can contract with a company that offers small business accounting services. We have already established that doing your own accounting is not a feasible option for the long term, but you may consider bringing in your own permanent accountant. This will be a costly task, from the day you post the ad until the day you write his first pay check, and pay for his benefits and unemployment insurance.

Utilizing small business accounting services puts experienced, knowledgeable professionals at your beck and call, at a flat rate that you only pay when you have a need. This means that if you have a week in which your company really only requires a few ledger entries, you are not paying a full time salary so your accountant can find some work to do.