Opening a bakery or a new business of any kind can be a fulfilling and exhilarating experience. It is an accomplishment in and of itself. However, when achieving a milestone such as this, it is also equally essential to be fully aware of what it takes to have a successful business. For instance, a necessary aspect of the entrepreneurial world is knowing how to do your finances.
So, here are some helpful tips on how to balance those books.
Knowing Your Costs
When it comes to owning your own business, it is imperative to know the exact costs of your products. In terms of the cake business, the products would be the company’s food and baked goods. Business expenses are generated from the business’s overhead, direct labour, and direct materials.
Overhead costs are generally a person’s built-in expenses, which may refer to the costs of insurance, rent, utilities, and salaries. Direct labour, however, would be about the salaries and benefits an employee may receive for producing and serving the product.
Direct materials, on the other hand, are raw traceable items of a manufactured product. Sugar, vegetable oil, and flour would all be examples of direct materials in a bakery. As you can see, being aware of your product costs can be one of the first steps in having a successful establishment.
Purchasing Accounting Software
Even though being aware of your product costs is high on the list, purchasing bookkeeping software has its importance as well. Buying this software can allow you to divide your business accounts into liabilities, equities, and assets. In the finance world, a liability is the amount of money your company may owe to someone else.
Equity, on the other hand, is the residual value of any earnings your company has made after all liabilities are removed. In contrast to liabilities and equities, assets would be considered the resources that are owned by a company that has economic value.
For instance, in the bakery business, someone’s assets could be their equipment, baked goods, or even furniture, whereas their liabilities could be referring to a bill to a supplier that has not been paid yet. All in all, a good rule of thumb to be mindful of is a person’s assets minus liabilities is the total sum of his or her equity.
An additional benefit to having accounting software is that it tends to be helpful when an employer calculates his or her employee’s section of certain benefits and taxes like Social Security or federal income taxes. Saying this, a suitable alternative to using this software is to reach out to a third-party service to assist you in processing your employee’s checks.
Are you aware of when to record your business’s revenue? Well, according to the revenue recognition principle, an entrepreneur should only document his or her revenue when it has been earned, as opposed to when the suspected payment is collected. For instance, in the dessert business, what would happen if a business owner completed a catering order and received $250 for his or her labour?
Well, this individual would be able to immediately recognize this revenue after the service is complete, even if he or she does not expect this payment from the customer until the following week. In short, for a company to record its revenue after a sale, the amount must meet specific prerequisites, such as an agreement or certain obligations.
Tracking Your Expenses
It is beneficial to have a specific system of record-keeping when it comes to recording your everyday expenses. Tracking expenses can help create order and structure within an individual’s establishment. For example, what would happen if someone calculated his or her budget every day, as opposed to every two weeks? This individual will be able to have a better understanding of where his or her finances are. This will enable them to plan their next budget accordingly.
In any event, using these four helpful tips may be an entrepreneur’s next step in successfully getting his or her finances together.