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Updated: Jun 28, 2021

Samantha Alecozay

June 11, 2021

As a business owner, you MUST know how to manage the financial affairs of your business. No matter how talented you are or how popular your business is, how you manage the money coming in and out will impact your success. Even if you assign all financial management of your business to a professional, it is important to understand financial basics to protect your interests.

As both a general business and business bankruptcy attorney, I have seen the damage poor financial management can cause, spelling disaster for even the most hard-working and skilled business owners. Despite the critical nature of financial competence, a majority of small to medium-sized business owners in the San Antonio area have never taken a business finance course. Luckily, it is easy to become knowledgeable on financial basics. This blog offers a cursory discussion of basic financial concepts to get you started.

Basics of Transactions and Accounts

At a fundamental level, a transaction is a business event that has a monetary impact, such as selling goods to a customer or buying supplies from a supplier.[1] Meanwhile, accounts are a record of all financial transactions that are designated as a certain type, like sales or payroll.[2]

Examples of transactions include the following:

1. providing money directly to the company as a director, member, or other title referring to an owner position;

2. earning fees and billing clients for services rendered/goods sold;

3. other business expenses required for operation; and

4. the purchasing of assets needed to operate the business such as equipment and inventory.

For examples of accounts, the most common are:

1. Cash. This is the current balance of cash held by a business, usually in checking or savings accounts.

2. Accounts receivable. These are sales made to customers on credit, which customers must pay for at a later date.

3. Inventory. This is items held in stock for eventual sale to customers.

4. Fixed assets. These are more expensive assets that the business plans to use for multiple years, such as manufacturing equipment or office furniture.

5. Accounts payable. These are amounts owed to suppliers that have not yet been paid.

6. Accrued expenses. These are liabilities for which the business has not yet been billed, but for which it will eventually have to pay.

7. Debt. This is cash loaned to the business by another party.

8. Equity. This is the ownership interest in the business, which is the founding capital and any subsequent profits that have been retained in the business.

9. Revenue. This is the amount of sales made to customers (both on credit and in cash).

10.Cost of goods sold. This is the cost of goods or services sold to customers.

11.Administrative expenses. These are a variety of expenses required to run a business, such as salaries, rent, utilities, and office supplies.

12.Income taxes. These are the taxes paid to the government on any profits earned by the business.[3]

These transactions and accounts are all managed and recorded through proper bookkeeping.

Basics of Bookkeeping

In general, a bookkeeper records transactions, sends invoices, makes payments, manages accounts, and prepares financial statements. Bookkeeping and accounting are similar, but bookkeeping lays the basis for the accounting process—accounting focuses more on analyzing the data that bookkeeping merely collects.[4] The bookkeeper does not have to be a professional and can even be the individual owner, however; consider time management and the demands of being a business owner. A good strategy is to either frequently dedicate time to work on the books as the owner or work closely with an employee/third party designated as the official bookkeeper for your business.

The easiest way to manage your bookkeeping is by using well-reviewed accounting software such as QuickBooks or Xero.[5] They provide a desktop program and a cloud-based online version, both with a vast array of features. You can even link your bank accounts and credit cards to auto-generate transactions. Furthermore, your accountant can be invited to view your bookkeeping so he or she can make necessary edits, analyze the records, and provide assistance. Please note that even though these programs are user-friendly and provide generous assistance, they are capable of making mistakes when on “autopilot.” You must take time to understand the process and how to properly categorize transactions. Talk to your accountant to learn more about how to categorize transactions and other specifics such as whether you should use single or double-entry bookkeeping.

Regarding the frequency of bookkeeping, you may be tempted to put off bookkeeping until the end of the month, but keep in mind, the longer you put it off, the more work it’ll be to input all those stale transactions. By committing to frequent bookkeeping, you’ll spend potentially less than an hour each week or less than 30 minutes each day to input transactions with fresh paper trails. Moreover, your personal records will be up to date and provide real-time information about your business’s operations, allowing you to make educated decisions about productivity and the direction of your business.

Common Types of Financial Statements

Besides general bookkeeping, you may also need to generate financial statements. The most common financial statements include income statements, balance sheets, and statement of cash flows. The type of statement you need will depend on the nature of your business and who will be seeing/using the statements.

An income statement, also referred to as a profit loss statement, is a document showing the revenue/gains and expenses/losses of a business. They can range from simple to complex depending on the size and nature of the business. Timeframe of what the statement records will also depend on the purpose of its use. Income statements are especially useful for businesses that operate on an accrual basis (see below for a description of cash basis v. accrual basis).

A balance sheet is a summary of the dollar amounts of a company's assets, liabilities, and owner's equity (or stockholders' equity) as of the date the balance sheet is prepared. Assets are a business’s resources such as cash, accounts receivable, and inventory. Liabilities are obligations of the business such as accounts payable and loans payable. Finally, equity reports the amounts that were invested by the owners plus the business's earnings that the owners chose not to withdraw as dividends or drawings.[6] A balance sheet is commonly used for financial analysis of a business's performance.

A statement of cash flows, also called a cash flow statement, summarizes the amount of cash and cash equivalents entering and leaving the business. Moreover, it can measure how well a business generates cash to pay its debt obligations and fund its expenses. A statement of cash flows is often prepared in conjunction with a balance sheet and income statement, and may be necessary for financial reporting under current accounting standards in the U.S.[7]

Your accounting software will provide templates for most if not all of these forms of statements, but if not, you can find excel templates online for free or through your accountant. A professional may be necessary to prepare financial statements depending on why they are being used and the credibility needed.

The type of financial statements you need may also depend on whether your business is on a cash or accrual accounting basis. The difference between cash basis and accrual basis is essentially the timing of when you consider your business to have generated income and incurred expenses. Cash accounting recognizes revenue and expenses only when actual money changes hands, but accrual accounting recognizes revenue when it's earned (which includes accounts receivable), and expenses when they're billed (but not paid). The type of accounting basis that is best for your business will depend on the type of business you operate and what your accountant suggests.

Professional Assistance

You should have a basic understanding of financial management, but hiring a financial professional is important as well. A business’s failure to effectively manage its finances often has to do with both a lack of financial knowledge as well as failure to hire a financial professional. A financial professional may include a professional bookkeeper, a financial advisor, or an accountant, but the most beneficial financial professional you can hire is an accountant based on the scope of services available and competency.

An accountant’s job is to both manage/analyze the financial records of the business as well as use those records for tax purposes. In this way, an accountant can make sure there is proper financial management of the business and sufficient information for its records/taxes. Depending on who you work with, they may also be able to provide payroll and invoice services. You could hire multiple parties, such as a professional bookkeeper, financial advisor, and accountant all at the same time, but often all a small business truly needs is a good accountant. Once you hire someone, always work frequently with them, communicating as much as possible about the financial matters of your business. Additionally, before signing any engagement, discuss the scope of services the professional will provide and any questions you may have regarding representation.

Helpful Resources

For more in-depth information about financial management, check out these free resources below:


We hope you enjoyed this article. Keep a lookout for future articles by checking out our blog page or following our Facebook page to receive updates.

Our attorney, Samantha Alecozay, has established herself as a unique and accessible option for business owners in the San Antonio area needing assistance that goes above and beyond traditional legal counsel. Samantha has a diverse background through academic research and real-life practice in subjects such as business psychology, business bankruptcy, financial management, secured transactions, business practice management, and other areas that allow for a fresh and thoughtful approach to legal services. To learn more about Samantha's expertise and background, visit our "Meet our Attorney" page.

If you have any legal questions or need counsel for business law matters, please contact us at (210) 774-2741 during hours of operation or send us an email at You can always visit us online at

We look forward to assisting you!

[1] [2] [3] [4] [5] This content is not sponsored by either QuickBooks or Xero. [6] [7] Financial Accounting Standards Board. "Statement of Financial Accounting Standards No. 95,,” Pages 7-9. Accessed June 10, 2021.

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Terry Murray
Terry Murray

Great common sense post!


(210) 774-2741

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