According to economists, the financial crisis we are currently going through is the most unpredictable and severe Western countries have ever faced since 1929. As a result of the credit crunch, many companies have had to downsize and thousands of people have lost their jobs. As unemployment rates keep increasing all over the world, people have no choice but to rely on their skills and creativity in order to turn negative into positive.
If you, like many others, are planning to start your own business, there are a few accounting concepts you had better become familiar as soon as possible, or you will end up having to hire one of the best (and highest paid) accountants in town to make sense of your receipts. Because we live in a globalised world, all European countries share the same accounting principles, which many non-European countries, such as China, are currently in the process of introducing into their GAAP (Generally Accepted Accounting Principles).
That means that you don’t have to be a professional accountant to keep track of your revenues and expenses, as there are only a few rules you have to keep in mind. First of all, keep a journal, whether on your pc/laptop or on paper, and make sure that you write down every single piece of information related to your business. For example, should you order £ 300,00 worth goods from a supplier, remember to specify how you are going to pay that supplier and the amount of goods that you have ordered. You should also make sure that every event is accompanied by a date and that your revenue can be matched with the expenses incurred to generate it, according to the following equation:
ASSETS = LIABILITIES + EQUITY (capital you invested in the business + profit)
It might seem like nothing to you, but this kind of information will allow your accountant to prepare a detailed and complete set of financial statements (balance sheet, income statement, cash flow statement, changes in equity + explanatory notes) in a very short time, which means that you will save hundreds, maybe thousands of pounds on accounting expenses every year.
Besides, keeping account of your expenses, obligations and trade receivables (amounts due to your business, hence you, as a result of goods sold or services provided on credit) will also allow you to see your financial situation from a different perspective and devise strategic plans aimed at increasing your income.