Business Finance: What You Need to Know
Successful companies need a good accounting system. Here are the basics you need to know about why accounting is important to your business.
Many of today’s small businesses will find they have to partner with banks and financial institutions from time to time, whether they do so to obtain financing for a facet of the business or in an effort to take the company public. In the event that a business is considering selling stock shares to members of the public, it should first weigh the benefits and downfalls in determining whether it’s the right step. While doing so can prove effective in encouraging business growth, garnering capital and funding research, it also has its drawbacks. Among the more notable considerations is the fact that businesses that go public tend to relinquish some control. Additionally, management is often more highly scrutinized among public companies than private ones, and in some cases, public acquisition can prove costly, because doing so may require new and upgraded software or similar business assets.
When two or more businesses come together to become one company, what’s known as a merger occurs. One of the first things that companies planning to merge should do is hire an intermediary to serve as a go-between and an aid on the transaction. Business owners should assess any potential intermediaries in terms of qualifications to ensure they are experienced, ethical, educated and professional. The intermediary, once determined, can assist with the numerous forms and contracts associated with business mergers, among them the agreements for the merger, asset purchase, stock purchase and franchise.
Loans and Investors
Many people looking to launch their own businesses find that obtaining the startup capital needed to do so is one of the most difficult parts of the process. Different types of businesses have different opportunities for obtaining financing, but many ultimately do so through loan programs available via the U.S. Small Business Administration. Other options include securing loans or investments through commercial banks or credit unions, state-specific financing programs, credit card companies, friends and family members or life insurance policies, among other avenues. Each option has its own benefits and drawbacks, however, so it is essential that entrepreneurs perform their due diligence in terms of determining what financing option is best for their specific needs.
Many modern businesses choose to offer credit to associates and customers in an effort to enhance sales and improve relations with business contacts. While doing so can be effective, it isn’t without risk. To leverage the use of credit effectively and legally, business owners must first familiarize themselves with applicable laws. Consumer credit laws dictate various information important to today’s business owners, such as how they can go about collecting old debts and how they can notify potential customers about interest rates, among other areas. Additionally, many states have their own laws concerning the process of offering credit to consumers, so it’s important that business owners understand not only federal guidelines, but also those that pertain to them at the state level.
Inevitably, today’s businesses will encounter situations where they need to collect a bad debt from a client or customer. The Fair Debt Collection Practices Act is what dictates most of today’s rules and regulations in this area, and it applies to personal as well as household/family debts. It offers clarification on topics such as what constitutes harassment in debt collecting, what is considered a false statement when it comes to the debt collection process, and what otherwise might be considered illegal in terms of collecting money owed.
Though the terms are sometimes used interchangeably, bookkeeping and accounting actually involve different processes. “Bookkeeping” refers to maintaining regular records of a business’s financial moves and obtaining important information that may later be used for tax or reporting purposes. “Accounting” involves close interpretation of data compiled during the bookkeeping phase, and it may also entail looking ahead to the future to anticipate gains, losses or other matters of importance to those involved in a business’s financial management. In most businesses, the accounting process begins with what’s known as a general ledger. This document serves to offer a single source where all of a business’s financial transactions are tracked in close detail. It is essential that whoever controls a business’s general ledger takes time to import all information accurately to avoid further problems when it comes time to file taxes. Many programs exist to help business owners manage and track their financial transactions, though some small business owners prefer to record their transactions by hand or otherwise without the aid of these programs.
This content applies to virtually all businesses in the United States, and it is intended to give business owners a general overview of business finance.