Keeping track of your business’s finances by hand can get overwhelming fast. That’s why most business owners use some form of accounting software. Recently we reviewed the top 4 providers of small business accounting software and chose QuickBooks as our top choice. (Read that article here)
If you are considering using QuickBooks for your business, then this introduction is for you. After reading you should have a full understanding of what small businesses use Quickbooks for, and how you can leverage it in your business.
What is QuickBooks?
QuickBooks is accounting software for business owners who want to keep their finances organized and accurate, but don’t necessarily have a lot of accounting knowledge.
In addition to basic accounting, invoicing, and reporting capabilities, quickBooks also offers add on services that allow you to handle things such as payroll, inventory tracking, and credit card processing.
What Are Small Business Owners Using QuickBooks For?
At it’s most basic level, QuickBooks allows you to keep track of the money coming in and out of your business, how much you owe others, and how much others owe you. This is useful not only for keeping your finances organized, but also for tax time, and keeping track of how well your business is doing.
If you are currently keeping your books by hand, then you can imagine how nice it would be to have everything organized into simple reports like this:
QuickBooks allows you to do that, and a lot more.
Create Invoices and Keep Track of the Money You Are Owed
You can easily create and send customized invoices to your customers using QuickBooks. This makes keeping track of the money owed by your customers (also known as your accounts receivable) a breeze.
When you use Quickbook’s invoicing program, you get a report that lists everything you need to know about your outstanding invoices. All of your unpaid charges are arranged neatly by customer and job. By double clicking any given invoice, you get a more detailed summary of the account’s activity.
In addition to tracking the money they are owed (accounts receivable), many larger businesses also use QuickBooks to keep track of the money they owe others (accounts payable).
Make Tax Season a Breeze with QuickBooks’ Tax Reports
If you use an accountant, all the information they need to complete your tax return is already organized for them in QuickBooks. Come tax time, all you have to do is provide them with a read only login to your QuickBooks account, and they can take it from there.
If you do your own taxes, QuickBooks allows you to easily transfer all the needed information into a tax preparation program like TurboTax. This cuts down on the time it will take to prepare your business’s taxes, as well as minimizing the risk for any errors.
Chart Your Success with QuickBooks’ Report Options
QuickBooks also makes reporting on your business’s financials a breeze. While there are many reports available to you, the 3 most important are:
- The Profit and Loss Report (Income Statement)
- The Cashflow Statement
- The Balance Sheet
Let’s have a look at what each tells you about your business:
The Profit and Loss Report (Income Statement)
At the end of the day most people are in business to make money. One of the primary functions of QuickBooks is to tell you just that: How much money your business has earned or lost over a specific period of time.
The profit and loss report lists all the money you have paid out over a specific time (your expenses), and all the money you have earned (your income) over that same period. Your expenses are then subtracted from your income to give your net income.
Net income is basically the profit or loss of your business over the time period you have run the report for. You can run profit and loss reports for short periods of time like week over week, or longer periods of time like quarterly or annually.
Keep on top of your cash with your statement of cashflows
There have been many businesses that were profitable, but still went out of business because they did not have the cash on hand to pay their bills when they came due. This is why, in addition to keeping track of how profitable your business is, you also want to keep track of the amount and timing of the money coming into and out of your business.
The Cash Flow Statement in QuickBooks allows you to do just that. The cash flow statement is similar to the profit and loss report, but it does not factor in anything that does not involve actual money coming into and out of the business.
See a full summary of your business’s Financial Picture with Your Balance Sheet
Once you know how much money your business has earned or lost, and what your cash position is, the final piece of the puzzle is the overall financial picture of your business. This is where the balance sheet comes into play. It gives you the broadest overview of everything that is happening with your company’s financial picture.
Your balance sheet is made up of three primary categories:
Assets: An asset is anything you own that is worth something. This includes both things you can touch (your inventory, real estate, office supplies, cash etc) and intangible things like a patent or trademark your business holds.
Liabilities: A liability is a legally-binding obligation to settle a debt. It refers mostly to things like taxes, money you owe to vendors for goods and services, and the bank for loans.
Equity: Equity is what is left over after you subtract your assets and your liabilities. This includes any money you have invested in your business plus any earnings you have not withdrawn from the business. If your business has lost money over that period you would subtract any losses your business has taken.
Your business’s equity is meant to show what would be left over if you closed up business today, sold off everything you owned, and paid all your debts.
You hopefully now have a good understanding of what QuickBooks is and why businesses use it. Now it’s time to get setup with your own QuickBooks account. The first step in that process is to choose the right version of QuickBooks for your business. We show you how to do that in the next article in this series.