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Ebook The everything accounting book: Part 2

(BQ) Part 2 book "The everything accounting book" has contents: Always know your cash, handling customer credit, controlling purchase costs, the end of period cleanup, preparing financial statements, different entities mean different equity, unique issues for specific businesses, retirement plans,.and other contents. | chapter 10 Always Know Your Cash With a new or small business, cash is absolutely the most important asset you can have. Without it in plentiful supply, your business simply cannot survive. Unfortunately, many business owners confuse profits with cash, thinking that if they’re earning income it means they have money. That’s not always true. Learning how to effectively manage your cash flow, especially in the early struggle-filled days, can mean the difference between success and failure for your company. This chapter will teach you what you need to know to come out on the winning side. 10 T h e e v e ry t h i n g accou nt i n g b o o k The Importance of Having Cash No business can survive without cash. Even with monumental profits on the books and the promise of growing future sales, a company without cash will not make it. If you don’t have enough money to pay your bills, your vendors will stop supplying you with whatever it is your company needs to generate sales. More small companies go out of business because they’re out of cash than for any other reason. In fact, the bankruptcy courts are full of smallbusiness owners whose companies just couldn’t pay the bills any more. Product-based businesses usually have more money troubles than do service businesses. That’s because any company that sells products has to first buy them (or the materials necessary to create them). That almost always means cash has to go out before it can possibly come in. Service companies may not need a lot of cash at first, but that doesn’t mean they won’t need it before it comes in. Luckily, there are a lot of things you can do to prevent that dire situation. The most important one is to know how cash really flows in and out of your business. Then you can plan for shortfalls before they occur, nipping that problem in the bud. The easiest way to avoid cash crunches is to put enough money into the business at the start; absent that, you may have to contribute more capital or take out