by Charles Simmins

Created on: May 23, 2008   Last Updated: October 05, 2011

Small businesses are the backbone of the United States economy. They make up 70% of the businesses in the country. They employee most of its workers. And the number one question that the owners of the millions of small businesses have is "am I making any money?"

That question is answered by accounting, the routine accounting for sales, expenses, cash coming in and cash going out. There are many options for small businesses when it comes to accounting.

Accounting software is inexpensive and most packages come with a sample business already set up. Between the package's tutorial and the existing setup, you have the start of your company's accounting.

This is where a pitfall that has closed many a small business occurs. Having a business means that you must have a cash flow, cash in to balance cash out. Accounting packages can tell you how you are doing, but only if you are entering the data into the software. If you procrastinate entering bills, receivables, cash receipts and checks, you cannot know what cash you have and what cash you need.

There are Internet based accounting packages. The pros and cons will be about the same as those for using your own software, with one big exception. If you cannot access the Internet, you cannot access your accounting.

Many people in the accounting profession make a living freelancing, performing basic accounting for a number of small businesses. If you can afford their fees, this might work for you. Be sure you understand just what they are doing for you. If you expect them to do the tax returns and they do not, it is your small business that will suffer, not theirs.

When you have grown enough to have enough cash for a payroll, you can consider hiring an accountant / bookkeeper. Since this is the person touching every single aspect of your business and all its cash, you will want to check their references thoroughly. It might not be a bad idea to review their work on a weekly basis.

Here is where another pitfall comes in. In many small businesses, the owners are very busy, sometimes too busy to do the banking or sign checks. Sometimes the person you hire is not honest and they steal your business.

You must never be too busy to pay attention to the numbers because they are the clues to the health and potential lifespan of your small business. You cannot spend income, only cash, and you must pay some bills no matter what. Tax bills, sales taxes collected, payroll taxes withheld or owed. A small business can die very easily if these must pays are overlooked or net profit means a lot of people owe you money.

No matter how small the business, or how large, accounting is important. Business owners and managers ignore the numbers at their peril and put the business at risk.

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