Small business owners are subject to some of the same legal and accounting rules and regulations that apply to large corporations. Even if a small business owner hires professionals to do these jobs, such as a good accountant and attorney, it can help to know some basics about legal and accounting requirements.
The U.S. Small Business Administration outlines accounting policies and procedures for Small Business Investment Companies, or SBICs. These include filing an audited annual financial report, following generally accepted accounting principles and 25 other accounting policies and procedures that must be followed.
The SBA also has a free, 30-minute online video introduction to accounting that shows how a balance sheet and cash flow and income statements work. Only knowing the product you sell and relying on an accountant to take care of your business’ numbers isn’t going to help a business owner who’s going to make many of the critical decisions facing the business, according to the SBA.
“Whoever is making the decisions for the business needs to understand the basics of accounting and what each of the financial reporting statements mean,” according to its introduction to accounting. Even if you let someone else keep the books, it’s important to at least understand the numbers.
Keeping The Books
Keeping accurate books allows a business to report taxes, price products accurately, know if you’re making or losing money, and know your cash flow so you can work with bankers and investors. Accountants like to categorize things, such as having two categories for the stuff our business owns: current assets and fixed assets.
Current assets are cash or other assets that can be converted into cash within one year. Fixed assets are property and equipment owned by the business. These fixed assets aren’t normally intended for sale, but are used again and again. Accountants also want to keep track of “who owns it,” broken down into what you owe to others and what’s yours.
When you owe someone else you could say you’re “liable” to that person or company. These are called liabilities. For the share of the business that you or other partners own, it’s called “owner’s equity,” which is the part of the assets that the owners have claims to after all the liabilities are paid.
The SBA also has a list of resources to help small businesses understand the legal requirements of their business. For example, the Federal Trade Commission oversees advertising and marketing law, regulating how businesses label products and conduct telemarketing campaigns, among other things.
Antitrust, bankruptcy and securities laws protect the financial interests of small businesses and individual investors. Antitrust laws, for example, promote vigorous competition and protect consumers from anti competitive mergers. Certain financial and reporting obligations are imposed on businesses that sell publicly traded securities.
For businesses that sell online, whether on eBay or through an e-commerce site they operate, there are several online business laws to comply with on collecting sales tax online and international online sales.
Employment and labor laws can take effect once a company’s first employee is hired. The U.S. Department of Labor
oversees federal and labor law, and states may have their own specific laws. For example, hiring your first employee requires eight steps, according to the SBA, including setting up records for withholding taxes and obtaining workers’ compensation insurance.
Details of legal and accounting basics go on and on, making it worthwhile to hire professionals to help you wade through them. But in the end, you’re the decision-maker as the business owner, so it’s smart to know as much basic information about them as you can so you can make informed decisions.