You are running a small business that should, at a minimum, pay you a salary. You will not have an idea what that salary should be unless you have accounting. It does not have to be an elaborate system but it should follow what is called “Generally Accepted Accounting Principles” or GAAP.

This is where a competent accountant comes in. A competent accountant can set you up with a paper process or preferably recommend some inexpensive and user friendly accounting software. A non-inclusive list of software programs is provided on this site (Finding Software). You are responsible to select the program, and it may not be one of those listed, that works best for you. The list in not an exclusive recommended list!

You should have a basic understanding of the three essential accounting documents:

1. Balance Sheet—it is a snapshot at a particular point in your business that shows what you own (your assets) and what you owe (your liabilities).
2. Income Statement, also called Profit and Loss Statement or P&L—this shows how well you are doing over a period of time. It subtracts expenses from sales and can help you do income projections.
3. Cash Flow Statement—this shows how well you are managing your cash by subtracting cash outlays from cash received. This statement is the most important financial planning tool because it allows you to plan for when you can afford to buy something.

A good accounting system is only as good as you make it. You need to take the time to set it up properly and record (post) money coming in and money going out on a regular basis, at least once per week.

A good accounting system will save you money and will enhance your end-of-the-year IRS and State tax filing accuracy.

There is a glossary of financial terms on this website.

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