Should a Small Business Owner Take Accounting Courses?
By: Adam Colgate
While having an M.B.A. from Harvard is certainly not a prerequisite for running a successful small business, having some basic accounting skills and knowing how to use accounting software can save a small business owner a lot of money and frustration.
Even if the business owner has the resources to hire an accountant, a lack of accounting knowledge could allow an unscrupulous accountant to commit fraud without being detected for quite some time.
Also, keeping track of money flows and having a good basis in accounting makes good business sense for owners of both small and large businesses.
In many ultimately unsuccessful enterprises, failing to keep track of the money often results in the company’s money gradually or suddenly disappearing.
Learning Basic Bookkeeping: A Good Place to Start
Many a small business has failed due to a lack of proper bookkeeping. One of the most important elements shared by all successful businesses of any size is keeping accurate records, which is also a legal requirement.
Besides unnecessary fees such as overdrafts and late charges, a lack of poor records also attracts the attention of the Internal Revenue Service and can be the reason for an audit and other tax consequences.
Poor record keeping can cost a business a lot of money and is the first step to ruin in many small businesses.
To help remedy any lack of understanding of basic accounting principles, a course in business accounting will generally include bookkeeping skills. Once you have taken the course, a family member could easily be taught to keep the company’s books until the firm’s profits allow for the hiring of a professional bookkeeper or accountant.
Furthermore, having basic bookkeeping knowledge will give you the possibility of effectively reviewing another person’s work. Having a working knowledge of bookkeeping is an essential financial element for just about any small business owner.
Learning About Financial Statements and Writing a Business Plan
Writing a financial plan for a business can be challenging for many business people.
Nevertheless, knowing and understanding your company’s financial statements can be invaluable in running any size business.
The four principal types of financial statements for a business are:
- Balance Sheet
- Income Statement
- Statement of Retained Earnings
- Cash Flow Statement
Taking an accounting course can be extremely helpful in gaining the knowledge to write a business plan and in learning the particulars of each financial statement.
Learning How to Choose and Maintain an Accounting System
Businesses generally use either a cash method for accounting or an accrual method. In the cash method, income and expenses are tallied as they are made, and this is the accounting method most commonly used in small businesses.
The accrual method records income when a sale occurs, instead of when payment is received.
Expenses are then recorded after the product is received, instead of when the product was paid for. The accrual method is generally used for larger businesses that use invoices and maintain a large inventory.
Maintaining your accounting system requires accurate record keeping. A number of accounting software packages are available that allow you to keep accurate records and save you the trouble of keeping records manually.
Overall, a basic accounting course can be invaluable to any business owner, especially if the entrepreneur has little or no accounting experience. The knowledge gained from a basic accounting course can make a difference in both profitability and efficiency.
Furthermore, taking a course in accounting can now be done online, if you prefer to study at home. Also, many community colleges and business schools offer accounting courses if you have the time and prefer to study in a more scholastic environment.