When you take the time to learn how to read and understand your books, you’ll have an excellent gauge of how well you’re doing. They also provide you with lots of information throughout the year, so you can test the financial success of your business strategies and make course corrections early in the year, if necessary, to ensure that you reach your year-end profit goals. When you have a firm grasp of the accounts your bookkeeper uses to manage your business, you’ll have a solid financial picture of your business, enabling you to make better decisions and to run your business more efficiently. Following are the most common, must-have accounts used in skin care facilities.
1. Cash. All your business transactions pass through the cash account, which is so important that bookkeepers often use two journals—cash receipts and cash disbursements—to track the activity.
2. Accounts receivable. If your skin care facility sells its products or services to clients on store credit, you definitely need an accounts receivable account. This account is where you track all money due from clients.
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3. Inventory. Every company must have products to sell. Those money-making products must be carefully accounted for and tracked, because it’s the only way a business knows what it has on hand.
4. Accounts payable. No one likes to send money out of the business, but you can ease the pain by tracking and paying bills in your accounts payable account.
5. Loans payable. Inevitably, your company will need to purchase major items, such as equipment and furniture. Unfortunately, you may find that you don’t have the money to pay for such purchases. The solution is to take on long-term loans to be paid over more than a 12-month period. The loans payable account allows you to monitor the activity on these loans in order to get and keep the best rates, and make all loan payments on time and accurately.
6. Sales. No business can operate without taking in cash, through sales of the skin care facility’s products or services. The sales account is where you track all incoming revenue collected from these sales.
7. Purchases. Purchases are unavoidable. In order to have a tangible product to sell, your skin care facility has to purchase a finished product from a supplier. In the purchases account, you track the purchases of any raw materials or finished goods.
8. Payroll expenses. You must pay employees to get them to stay around; that’s a fact of business. To keep up with what is, for many businesses, their biggest expense, track all money paid to employees in the payroll expenses account.
9. Office expenses. From paper, pens and paper clips to costs related to office machinery, these expenses tend to creep up if they aren’t carefully monitored in the office expenses account.
10. Owners’ equity. Accounts related to owners’ equity—which is the amount each owner puts into the business—vary depending on the type of business. Money put into the business by each of the owners is tracked in capital accounts, and any money taken out of the business by the owners appears in drawing accounts. In order to be fair to all owners, your bookkeeper must carefully track all owners’ equity accounts.
11. Retained earnings. The retained earnings account tracks any of your skin care facility’s profits that are reinvested for growing the company and not paid out to the company owners.
Lita Epstein designs online courses about reading financial reports, investing and taxes. She’s the author of Reading Financial Reports For Dummies (Wiley, 2012) and also writes periodically for AOL’s Daily Finance.