6 Essential Accounting Skills Every Entrepreneur Should Know

6 Essential Accounting Skills Every Entrepreneur Should Know
By regionaleducationalinstitute | September 22, 2021

Accounting is one of the most crucial aspects of a business. But while it is good to have licensed accountants handling your most complicated financial and taxation concerns, you, as the owner of the company, still need to have a good grasp of the status and goings-on in your organization.

Fortunately, you don’t need to have expert accounting skills yourself to drive business growth effectively. Having a clear understanding of the most crucial aspects of your company’s accounts is enough to help you know if your business is doing well or not so that you can make informed decisions.

Enrolling in REI’s professional courses in Abu Dhabi will help you learn the following six essential accounting skills entrepreneurs need today.

1. Cash Flow Management

Cash remains king for businesses, which means business owners like you need to know exactly how to handle your company’s cash flow to boost your success rate.

All businesses, especially startups, need to handle cash well because it can be considered the most critical of their assets. It fuels your business’s “engine,” ensuring that the flow of supplies, equipment, and services necessary to build inventory, reach the customers, and grow your company remains unhindered.

Understanding the inflow and outflow of money will allow you to make accurate forecasts that support the creation of on-point and effective plans to keep the business running and growing.

  • Prevent unexpected cash shortages.
  • Use resources effectively to drive business growth.

2. Balance Sheet Management

Balance sheets serve as a go-to reference for entrepreneurs to determine their company’s financial health during a specific period. It also lets other people interested in the business – like investors and employees – get a glimpse of the available resources and how they were financed.

In a balance sheet, you’ll find two main things:

  • Assets, or money and valuables that you have right now.
  • Liabilities, or money and other valuables that you owe other people or entities.

Balance sheets also come in the language of debit (on the left) and credit (on the right). They serve as a record of business bookkeeping transactions and reflect how debit or credit affects a specific type of account.

Below is a list of accounts and how they are categorized based on an increase or decrease:

  • Assets – an increase in balance is considered debit, while a decrease is considered credit.
  • Liabilities – higher liabilities mean higher credit; lower liabilities count as debit.
  • Revenue – more revenue accounts for higher credit while less is considered debit.
  • Expenses – an escalation of expenses is deemed debit while a drop is considered credit.
  • Equity – higher equity equals credit and lower equity is debit.

Balance sheets serve as a way for entrepreneurs to stay on top of their business. After all, a boom in sales doesn’t necessarily lead to long-term success. Even if your sales keep going up, you still need to pay attention to your company’s liabilities to keep the flow of money balanced.

3. Financial Statements

Business owners also need to learn how to prepare financial statements, especially those who have yet to gain the capability to hire a full-time accountant. That said, there are four primary financial statements you need to know about:

  • Balance sheet.
  • Income statement.
  • Statement of retained earnings.
  • Cash flow statement.

All these statements need to be analyzed to determine the financial state of the company and plan for its future needs.

4. Taxation

Although accountants and professionals who are more educated on the specific laws and procedures usually handle this, business owners still need at least some basic knowledge on taxation.

Remember that, as the owner, you are responsible for making taxation returns for both the company and your employees. You also should be aware of all taxation requirements that apply to your firm to make sure you’re operating within the given parameters of the law.

As a bonus, knowing your way around taxation will also help you save money by applying for tax liability deductions your company may be entitled to.

5. Budgeting and Forecasting

For an entrepreneur, the ability to budget and forecast could become a huge asset.

Regardless of your specific goals, you need to predict certain things that can affect the future to ensure business growth. The more accurate these forecasts are, the better.

A few things you need to be able to forecast include:

  • Revenues
  • Operating costs
  • Resource needs
  • Profit levels

Your predictions will affect your company’s capability to attract investors, hire employees, secure funding, and expand your business to reach more customers.

Budgeting and forecasting are usually done annually and take into account historical data from previous years, current trends, economic changes, and other factors that affect your business.

6. Communicating About Money

Communication is a soft skill that has become important in business, even in accounting. You need to be able to communicate about money well to deal with financial matters efficiently.

Entrepreneurs need to be comfortable discussing money matters. Plus, they also must be able to convey their thoughts and discuss hard numbers well, especially when speaking with vendors, employees, investors, and other stakeholders of the business.

Crystal clear communication ensures that all parties are on the same page, especially when it comes to payments and the scope of services. Having this skill protects your accounts and ensures that your business doesn’t suffer from miscommunication or assumptions.

Grow Your Business with Accounting

You don’t need to get a four-year degree to become proficient enough in accounting to grow your business. REI offers management courses and other professional courses to give you the right tools and knowledge to drive business growth. Talk to us today.