Although it is not the most glamorous aspect of entrepreneurship, accounting is an essential business activity. But it’s far from being dull — bookkeeping and number-crunching can be dynamic and exciting for entrepreneurs and their growing businesses.
If you want to make money with your business idea, you need to know how to manage it. As a future business owner, you can take a creative and innovative approach to accounting for entrepreneurs and use it to fuel your success — if you know where to start.
Small business finance basics
According to the U.S. Small Business Administration (SBA), cash flow issues and low sales account for the majority of small business closures. Even the most daring dreamers and determined budding business owners can’t maximize their entrepreneurial potential unless they master the money aspect of their businesses. Successful entrepreneurs use accounting practices to get and stay ahead.
After all, a business without a bottom line is merely a great idea or an expensive hobby. When a business is launched — when an idea or passion becomes a commercially viable product or service — money inevitably changes hands. As an entrepreneur, whenever it passes through your hands, you’ll need to be accountable.
Entrepreneurial businesses juggle a few different types of financial investments, obligations, and commitments. These are categorized as assets and liabilities. In the simplest terms, an asset is something a business owns; a liability is something a business owes.
Entrepreneurs typically deal with fixed and working capital investments, which may include tangible assets and promised long-term expenses. Examples may include operating costs like an owned building or rented space, or startup costs like IT equipment paid for upfront along with a subscription-based software program. Employee salaries, raw materials, and inventory also fall into these investment categories.
Startup founders must also manage the debts associated with the early stages of entrepreneurship. Depending on the business model they’re following, an entrepreneur may have borrowed money that they’re eventually required to pay back — sometimes with interest or a share of the profits. An entrepreneur may launch their business with money from investors, grants, business loans, crowdfunded money, bootstrap resources, or a combination of these sources.
In any case, accounting tactics help keep track of cash flow. Successful business owners won’t have to deal with bounced checks, outstanding invoices, or unpaid bills; solid accounting practices protect them from these mishaps. Best practices in accounting for entrepreneurs help streamline and simplify the process of managing money coming in and going out. With the details under control, entrepreneurs can focus on the big picture and realizing their business dreams.
Why accounting for entrepreneurs matters
Regardless of whether your startup investment came from bootstrapping tactics or venture capitalists, you can’t afford to blow your budget or rack up debts your business may not be capable of repaying. At the same time, you can’t afford to turn a blind eye to your sales and profits if you want your business to thrive. This is where accounting for entrepreneurs comes into play.
Even the most basic accounting practices help new business owners stay on track and keep all business dealings above board. Budgeting, bookkeeping, and financial literacy help entrepreneurs stick to tight budgets and manage financial liabilities. These tactics also generate proof of a business’ profitability. If an entrepreneur can demonstrate financial returns on their investors’ contributions, they’ll satisfy these key stakeholders and earn their trust — and perhaps additional funding to spur growth.
Accounting helps entrepreneurs quantify their more abstract visions into concrete goals. Despite creative differences, number-crunching keeps business collaborators on the same page, pointed toward the same destination. With these financial goals in place, recordkeeping enables entrepreneurial teams to see whether they’re hitting targets and meeting performance expectations.
Also, bookkeeping is a way to literally keep the books — to keep them organized, honest, up to date, and easily accessible. Entrepreneurs with good financial management habits have all of the essential accounting information at their fingertips. When it’s time to file taxes, pitch to new investors, secure new business loans, or tally up quarterly profit margins, these business leaders are more likely to be overprepared than overwhelmed.
Growth-oriented business owners regularly use accounting to help plan for the future. They rely on financial metrics to forecast earnings and operating costs. These predictions help entrepreneurs realistically strategize how they can meet future demands and business goals. When financial shortcomings appear on the horizon, forecasting helps business owners correct course. Savvy entrepreneurs use accounting strategies to ensure that process and performance are aligned with profit-making.
Accounting skills entrepreneurs need to learn
Many startup owners don’t have the resources to hire an accountant. Even those who do should commit to mastering business accounting basics. When a founder’s business scales up and they can delegate, hands-on experience in accounting for entrepreneurs will empower them to confidently transfer the responsibilities to a professional accountant. They’ll also be comfortable when discussing financial realities and goals down the road.
But, even in the early stages, entrepreneurs who seek long-term business viability and success know that accounting is a strategic tool and essential skill set. As the head of a new venture, entrepreneurs are in charge of all business dealings and operational activities. This includes keeping track of accounts. But what type of skills do aspiring entrepreneurs and small-business owners need to master?
They’ll need to be able to capture profits and losses in income statements, record and classify every expense, prepare tax documents, and much more. They might rely on a simple balance sheet, cloud-based accounting software, or a third-party accounting service. Either way, they must be familiar with accounting responsibilities such as:
- Accounts payable
- Accounts receivable
- Cash-flow management
- Expense reporting
- Financial forecasting
- Fiscal reporting
- Loans and grants
- Tax filing
It takes years of education and experience to completely master everything there is to know about accounting for entrepreneurs. A bachelor’s degree in accounting is a great place to start this journey.
How an accounting degree can help
To develop accounting skills and competencies, consider earning an online Bachelor of Science in Accounting degree from UAB’s Collat School of Business.
With an immersive but fully online program, you may be drawn to the entrepreneurial opportunities within accounting itself. According to the U.S. Bureau of Labor Statistics, 7% of accounting professionals are self-employed. Even those who don’t want to launch businesses of their own can use their abilities to enter the startup scene.
Whether you’re an entrepreneur looking to master accounting essentials or an aspiring accountant with an entrepreneurial spirit, UAB’s Bachelor of Science in Accounting program may be right for you. Visit the program page to learn more or connect with an enrollment advisor today.