If You Run a Small Business Don't Miss Out On This Opportunity

The most complex concept in small business accounting is the choice between Accrual Accounting and Cash Accounting Methods.

The difference is straightforward:

Cash Accounting recognizes income when you receive the money.

Accrual Accounting recognizes income when you complete the work and send a notice to the customer in the form of a statement, bill, or invoice.

Accrual accounting applies to money owed to you (accounts receivable) and money you owe someone else (accounts payable).

Businesses keep track of accounts receivable and accounts payable with Aging Reports, which show (1) who owes you payments (2) when the notice was sent, and (3) how much time has passed before you receive the payment.

Not all businesses need to use accrual accounts, but here is how this method greatly benefits small businesses.

1. Stronger Customer Relationships:

A well-organized accounts receivable system ensures timely and accurate invoicing, reducing the chance of billing errors that could damage customer relationships. Reaching out to customers through monthly statements fosters loyalty and long-term business relationships.

2. Cash Flow Planning and Forecasting:

Without a clear picture of outstanding payments and when you expect to receive them, your business risks running short on cash. AR and AP reports help you forecast future cash shortfalls before your business is impacted. Keep in mind that the best time to address your cash needs is long before the problem shows up in your financial statements.

3. Enhanced Financial Reporting:

When forecasts indicate future cash shortfalls, the least expensive way to address these needs is with a Revolving Line of Credit (RLOC). A business owner must demonstrate a need for additional capital to qualify for a RLOC. So this type of credit line requires an accounts receivable and accounts payable aging report to help the bank forecast how much of a line of credit is needed to fund your business.

4. Legal Protection:

Maintaining detailed, up-to-date records ensures that you comply with regulations and can provide proof of payment or non-payment in case of disputes.

How do I start?

Accrual accounting provides tremendous benefits for small businesses, including better financial management. It improves cash flow, reduces the risk of bad debt, strengthens customer relationships, and enhances your access to the least expensive financing options when additional funds are needed. Call CreditReady Bookkeeping now to get your bookkeeping and accounting needs met.

CreditReady Books provides monthly bookkeeping and accounting services to small businesses. We specialize in accurate bookkeeping and forecasting your cash needs, ensuring your business always operates profitably and grows in value.