Quite simply, accounting tells you whether you are making money. If you create a profit and loss statement each month, you can ascertain your position quickly. If you are losing money, you can make changes in your operations, such as increasing prices or reducing expenses, to correct the situation well before the year is over and thus ensure that your overall year will still be profitable.
If you don’t do any accounting, then that’s probably all you’ll be doing—making deposits, writing checks, and paying taxes, but not making any profit! Even in a very small business you need to be in control of your expenses.
This doesn’t just mean having the money; it also means knowing which portion of your revenue gets spent for which purposes. What percentage of revenue do you spend on marketing each month? Labor? Supplies? If you don’t track and control these expenditures, you are not managing your business—you are just blindly hoping there might someday be a profit.
A good bookkeeper, or even a good accounting software program, can help you organize your accounting quickly. However, you still need to understand the basic principles of accounting. This will allow you to use the information supplied by the bookkeeper or software program intelligently, so that you can make the changes in your business that will lead to success and profitability.
Both documents are equally important. The income statement tells you whether you are making money and delineates your costs and expenses. While, a balance sheet shows you how your assets are being used. For instance, from a balance sheet, you should be able to tell whether your inventories are too large, whether your receivables are growing, or whether your ratio of debt to equity is getting too high.
Glenn and his staff go above and beyond! They created my LLC and have taken care of my bookkeeping and payroll, all while assisting me with the logistics of my company. They have helped me to simplify my tasks, reduce expenses, and add revenue.
~ Pam Patton, Food To Go LLC