When you start to keep financial records for your business, you’ll need to decide what method of accounting to use. There are two choices – the cash method (also known as cash basis accounting) and the accrual method (accrual basis accounting).
Here are the differences between these two accounting methods and what to consider when deciding which method is best for your business.
As a business owner, you have a lot to juggle. And it’s likely you are constantly keeping an eye on your bank account to see how much money you have available. But how do you know if you’ve received all the funds from each day’s sales? Did the merchant processor transfer the payments that were due for that day? Were cash deposits made by your manager on time?
For most business owners, getting paid quickly is critical. It can also be extremely difficult. We have all experienced the frustration of investing time, energy and funds into a client job only to be left spending more time which is your margin following up on collections!
A couple of years ago, I was retained to help a struggling business regain its profitability. After six days, I told the CEO that the problem was not sales-related. The problem was too much overhead and debt. The CEO disagreed with my assessment – and to my great relief my contract was quietly terminated. The company went out of business eight months later.
Running a debt-free business is probably contrary to everything that you have ever learned. And you might wonder why you should do it.