Published on March 25th, 2014 | by Pete0
Everyday Accounting to Grow Your Business
Unlike the traditional nine-to-five career, growing a company from the ground up is an intensive labor of love. It requires five fundamental forms of capital akin to entrepreneurship–financial, manufactured, social, human, and natural. While it may take time to build up the financial portion, you can easily increase your wealth of knowledge by putting these four accounting tips into action.
Learn the Terms
Pop Quiz! Do You Know the Difference Between These Five Types of Capital?
Financial: Financial capital refers to the monies available for entrepreneurs to fund and supply goods and services necessary for the business to operate.
Manufactured: This type of capital is similar to financial capital but also includes the infrastructure leased or owned by the business but not included in output figures.
Social/Human: Social and human capital are closely related. Both are concerned with the knowledge and aptitude to deal with small communities, institutions, and partnerships.
Natural: Natural capital is an expansion of manufactured capital. It consists of all the natural flows of energy needed to produce the goods/services (i.e. water, fuel, oil).
Assets: Anything which carries value to the business or its owners. There are two distinct types of assets. Non-current assets include buildings, machinery, and land while current assets are more liquid, so things like inventory, accounts receivable, and petty cash fall into this category.
Liabilities: Obligations or debts which require some type of repayment in the immediate year (current liabilities) or more than a year (long-term liabilities). If you accrue liabilities in the form of back taxes you have a few options available to you.
“If you are unable to pay your liability in full, you can request an installment agreement from the IRS, which allows you to pay monthly installments, instead of one lump sum,” says Lawrence Levy, CEO of Levy and Associates. Your best bet is to seek advice from an attorney to see what type of outcome is possible in your situation.
Measured for Success
What do business owners and accountants have in common? They both deal with formulas on a regular basis. The ability to manage a company’s assets and liabilities is essentially one of the most important factors in its overall success.
Here are a few important equations to get a handle on. Consider it your cheat sheet.
Net Worth = Total Assets- Total Liabilities
Once you make it big and are ready to flaunt your net worth just take the total amount of your liabilities (debts, obligations) and subtract it from your total assets.
Simple Interest = (principal)* (interest rate) * (number of periods)
This is a useful formula to determine how much interest you will accrue over time and in turn have to pay out. Keep in mind this does not take into effect compounding periods. To calculate that figure, use this equation.
Cash Flow= Income- Expenses
Are you living within your means? If you don’t know the answer to that off the top of your head then perform this calculation. Simply take your gross income then subtract the sum of your expenses. These may include utilities, wages, rent or mortgage payments.
Having an organized system is one of the best tools you can have at your disposal. Neglecting to keep financial reports, receipts, and an up-to-date balance sheet of your business’s operations is like waving a flag at the IRS saying “come audit me”. So what if you’re just horrible at keeping track of the logistics? In that case, it’s in your best interest to recruit a professional accounting service. They’ll be able to offer you the tailored guidance to clean up your books and make your business shine.