Bookkeeping Basics For Small Businesses And Contractors In Colorado

Small business owners and startup entrepreneurs are building businesses with great products and services every day in Colorado. They build awesome teams and build large customer bases. Many businesses struggle with the bookkeeping. It is time consuming and takes up their weekends or nights.

It is important that business owners, like yourself understand the different types of “accounts” your bookkeeper uses to organize your finances and measure your efforts to determine your successes and failures.  Being a great contractor, for example, is not enough if you do not have a clear picture of your finances.

What do your accounts receivables look like? Are your customers always paying you late? Are you constantly paying your own bills late? If yes, then you and your business are headed for trouble.

Here are some of the most common types of bookkeeping accounts for a small business that you, as a business owner should be familiar with:

  • Cash. This is the foundation for your business. All of your business transactions pass through the Cash account. Good bookkeepers will track the cash coming in and out of your business.
  • Accounts Receivable. Regardless of whether you sell a product or services, if the payments are not collected immediately, you have “receivables” and it is important that you track the Accounts Receivable. This money is due from customers and keeping it current is critical, so make sure you send timely and accurate bills or invoices to your customers.
  • Accounts Payable. Let’s face it everyone has bills, but no one ever really likes to see the money leave the business. What makes it a little less painful is keeping track of all the bills for your small business and paying the bills in a timely manner. Good bookkeepers will track your accounts payable and help you keep your bills paid on time, avoid late fees and help you keep from paying the bills twice. Did you know that early payments may qualify you for a discount?
  • Loans Payable. Every small business or contractor at one time or another borrows money to purchase equipment, vehicles, or other items for the business. It is important to keep track of what is owed and what is due.
  • Inventory. Products you stock to sell are like money sitting on a shelf. It is important to account for inventory and track it. Keeping records will help you make wise decisions regarding your inventory.
  • Sales. This account is where all the incoming revenue from your products or services are tracked. Keeping these records current is critical in knowing where your business stands at any given time.
  • Purchases. This is where you should track all raw materials or finished goods that you have purchased for your small business. It is a major component of calculating “Cost of Goods Sold (COGS),” which is subtracted from your sales to find out your business’ gross profit.
  • Payroll Expense. Typically this is the biggest cost of all for many businesses. Every employee loves to get paid. Keeping this account current and accurate is essential for meeting your tax and other government reporting requirements. Ignoring these responsibilities can put your business in jeopardy.
  • Owner’s Equity. This account tracks the amount each owner puts into the business. Many small businesses are owned by one person or a group of partners. This means the money each owner puts into the business in tracked in Capital accounts and money is pulled from a Drawing account. It is important to each and every business owner to carefully record all Owners’ Equity accounts.
  • Retained Earnings. This account tracks all of the reinvested profits and is not paid out to the owners. This money will be a running total since the start of the business. Investors and lenders typically look at this account to see how the company has done over time.

Many small business owners think of this as an overwhelming task and put it off more often than not. The key is to learn to understand this information that your bookkeeper collects.  Ultimately, this information can help you run your business more effectively.