Most business owners started their companies because they were experts in providing a good or a service\u2014not at balancing a book. Nevertheless, good bookkeeping is necessary to manage any company\u2019s financial health, guiding decisions for growth initiatives and ultimately ensuring your business is in good standing with its tax obligations throughout the year. However, it can also be tedious, complicated, and time-consuming \u2014 especially for those who own smaller businesses or sole proprietorships. Additionally, the IRS can be unforgiving when it comes to mistakes \u2014 for instance, filing your payroll taxes just one day past the deadline incurs a 2% penalty. To make matters worse, these penalties can add up to a hefty 15% of the initial amount owed.<\/p>\n
There is good news, however; outsourcing accounting and bookkeeping to an outside firm is a simple and rewarding process that allows business owners to spend less time worrying over books and more time, well, running their businesses. Every day, more and more businesses make the switch to outsourced bookkeeping and accounting with FinancePal<\/a>.<\/p>\n We at IRS.com are proud to recommend FinancePal as the leading accounting and bookkeeping firm to help your business prosper for years to come.<\/p>\n <\/p>\n Having professional accountants on your team can help you make informed choices when it comes to growing your business.<\/p>\n<\/div>\n So, you\u2019ve turned your great idea into a lucrative business opportunity, started making sales, and are now thinking about processes that can help take your business to the next level. As a startup owner, your focus is likely set on acquiring customers and generating revenue. While those aspects are key to your business\u2019 success, so are your finances.<\/p>\n Accounting is an essential part of any business, but especially during the startup phase. Once you\u2019ve lifted your idea off the ground, established the structure of your business, and figured out your basic logistics, you need to start thinking about accounting. Since money will ultimately drive the success of your startup, financial management will play a significant role in the viability of your company.<\/p>\n While in the early stages, it may seem that your income and expenses are not complex enough to merit formal management, doing so from the get-go will significantly benefit your business in the long run. Setting up accounting during this phase can optimize your financial organization, increase your operational efficiency, and give you a better picture of your present and future financial health. More importantly, having proper, GAAP-compliant accounting from the very start will make your business much more attractive to investors.<\/p>\n Maintaining a positive cash flow is critical to your company\u2019s long term success \u2014 as much as securing investors, accurately forecasting and setting benchmarks, and being able to sustain growth. However, many small business owners cite cash flow management as one of their biggest challenges. This is due to a variety of factors, ranging from not being familiar with accounting and bookkeeping to simply not having the time to dedicate to the task.<\/p>\n Experiencing cash flow problems at any point in your business\u2019s operation may be more detrimental to its overall financial health than consistently seeing losses month after month. In fact, according to a study by U.S. Bank, 82% of small businesses to fail because of poor cash flow management.<\/p>\n So what factors affect your business\u2019s cash flow? There are many, but several of the most important include:<\/p>\n A lot of small businesses run into cash flow issues when these factors stack up because they are trying to grow too quickly. Without proper financial planning, these aspects of your business can get out of hand. The easiest way to mitigate cash flow problems before they happen is to have professional accountants and bookkeepers on your payroll.<\/p>\n When running a business, there are five types of financial statements that are part and parcel to the smooth operation of a company. These are: (1) the balance sheet; (2) the income statement; (3) the cash flow statement; (4) the statement of change in equity; and (5) the statement of financial position. Of these five financial statements, the balance sheet, the income statement, and the cash flow statement are considered the \u201cBig Three\u201d \u2014 the three main financial statements that the owner of any business, regardless of size, should be very familiar with. And when looking at the big three, the importance of a healthy balance sheet and profit and loss income statement cannot be understated.<\/p>\n It is important to note all of the key differences between the income and balance statements so that a company can know what to look for in each.<\/p>\n The first and foremost key difference between the two documents is the indication of performance. The balance sheet doesn\u2019t indicate performance \u2014 it merely portrays how a company is utilizing its resources. The income statement can give a much clearer picture of how a business has performed over a period of time.<\/p>\n The second key difference between the balance sheet and the income statement is timing. The balance sheet is more of a snapshot; it shows what a company owns and owes at a specific moment in time. Meanwhile, the income statement shows total revenues and expenses over a specific period of time.<\/p>\n The third key difference is what each document reports. The balance sheet reports assets, liabilities, and equity. The income statement reports cashflow information such as revenue and expenses.<\/p>\n The fourth key difference between the balance sheet and the income statement is how each document is used by businesses. Companies use the balance sheet to determine if the company has enough assets to meet financial obligations. Banks use the balance sheet to keep track of how the company uses its resources. Meanwhile, the income statement is mainly used to evaluate performance and to shed light on which, if any, financial issues need correcting.<\/p>\n The fifth key difference between the two documents is how they affect creditworthiness. Lenders use the balance sheet to judge resource utilization in order to help them determine if they should extend any more credit. Income statements, on the other hand, are used by lenders to decide on whether or not the business is making enough money to pay its liabilities.<\/p>\n Any business owner needs to be cognizant of the differences between the income statement and the balance sheet to better synthesize the vital insights they provide. But even though these two documents provide different sets of information, it is plain to see why both statements play an important role to banks and investors because they provide a solid indication of the current and future financial health of a company.<\/p>\n![\"call-img\"](\"https:\/\/www.irs.com\/wp-content\/uploads\/2018\/12\/Tax_Relief_Icon.png\"){kind=icon}
<\/div>\nConnect With An Accounting Professional Today!<\/h3>\n
Accounting and Bookkeeping for Startups<\/h3>\n
Small Business Cash Flow Basics<\/h3>\n
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The Balance Sheet and the Income Statement<\/h3>\n
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