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Keeping a general ledger is like being the stats from a basketball game: you're tracking every little detail that affects the scoreboard. In this case, you're tracking every detail that affects your financial statements. As you can see on the general ledger sample below, the ledger provides a snapshot of all transactions done for a defined period. The general ledger is made up of your journal entries, which record all business transactions made (e.g. receipts and checks).

1. Purchasing a Cash Register	Debit	Credit
Cash (Asset)		$2,000
Fixed Asset (Asset)	$2,000
2. Purchasing Candy on Account to Sell
Accounts Payable (Liability)		$100
Inventory (Asset)	$100
3. Selling Meat to Customer on Account
Accounts Receivable	$30
Sales (Income)		$30
4. Collecting The Account Receivable
Accounts Receivable (Asset)		$30
Cash (Asset)	$30
5. Paying Employees
Payroll Expense (Expense)	$500
Cash (Asset)		$500

For every business transaction on the general ledger, there are two offsetting columns. That is, for every debit, an equal credit exists. This makes sense because money will have to travel from one place to another. You'll know you have a financial error somewhere in your records if your books don't balance. The relationship between debits and credits for business transactions are shown in the table below (both tables adapted from Rieva Lesonsky's Start Your Own Business).

Account Type	Debit	Credit
Assets	Increases	Decreases
Liability	Decreases	Increases
Stockholder's Equity	Decreases	Increases
Income	Decreases	Increases
Expense	Increases	Decreases

Keep proofs of all transactions, such as those described in the general ledger sample above. You don't want angry vendors coming after for their dues you've already paid. Worse yet, you don't want to be audited without having these documents.

If you can't qualify through private lending, then the valuable government SBA loan program is just for you. You'll get less money than you would with commercial banks, but their policies against your equity and collateral won't be as harsh. The SBA is not the lending institution itself. It will help you prepare your loan application, and then submit it to banking institutions. The SBA meanwhile acts as a guarantor to repay a percentage of the loan to the banks if you're not able to do so yourself. If you own at least 20% equity in your business, the SBA will require you personally guarantee the loan. Are You Eligible? To be eligible for an SBA loan, you must have applied for and been denied a loan from a traditional lender (e.g. commercial bank). Your company must also be for-profit, independently owned and operated, not dominant in its industry, and have under 500 employees. What the SBA Wants Like lenders, they'll want to see that you can repay the loan. Then, they'll analyze your credit score, experience, management expertise, and collateral. If you've put a significant personal investment into your company, they'll see that you're willing to work hard to make your business succeed -- giving your application a great boost. The following describes the different loan programs offered by the SBA. 7A Loan Guaranty It's the most popular government SBA loan program of applicants. It's also the most flexible because you can use the loan for a variety of different purposes. These include working capital, furniture, fixtures, equipment, land, buildings, and leasehold improvements. The SBA can guarantee up to $1 million of the loan amount. You can repay the loan on working capital up to 10 years. For fixed assets, it's 25 years. LowDoc Standing for "low documentation," the LowDoc is the quickest processed government SBA loan. It's for you if you're seeking under $150,000, can prove a great company cash flow, and have a good credit rating. The LowDoc is usually a one-page application, and the turnaround is a quick 48 hours. Don't think you have no chance at getting one. 90% of applicants get some kind of financing. CAPLines CAPLines are short-term loans needed for working capital. SBA guarantees loans up to $1 million. CAPLines come in two varieties: revolving and nonrevolving lines of credit. With revolving credit, your balance each month depends on the amount of money you've repaid. With nonrevolving credit, you pay a fixed amount over a set period. 504 Loan This type of loan is at a fixed rate, and long-term. It's intended to finance fixed assets such as equipment or real estate. Small business owners use the 504 Loan to expand or their businesses. Usually, you'll have to provide at least 10 percent equity into the loan. MicroLoan If you're not looking for much and don't qualify for commercial lender loans, a MicroLoan is just for you. You can use the MicroLoan to finance from as little as $100, up to $35,000. You can't pay existing debts with it, but you use it for equipment, inventory, supplies, fixtures, and furniture. The government SBA loan is a great option if you don't qualify for commercial bank loans.

Learning how to read a financial statement is one of the most important aspects in running your business. Imagine playing a basketball game without watching the scoreboard; if you don't know you're trailing, failing to adapt and modify your techniques will cause your team to lose. It's important that you understand small business accounting so you'll know your company scoreboard (i.e. your company's performance in financial figures). Learning how to read a financial statement will get you a big leg up on your competitors.

The Basics

Accounting contains three financial statements: Balance Sheet The Balance Sheet shows a snapshot of your company right now--how it is doing financially at the present time. Income Statement The Income Statement is the camcorder that records a period of time; in accounting terms, it's to see how you received the earnings (i.e. net profits) between your beginning balance sheet to the ending balance sheet for a certain period. Cashflow Statement The Cashflow Statement keeps track of your company's cash as it flow in and out during a time period.

Balance Sheet

The Balance Sheet is divided into two financially equal sides, so they can "balance."

Assets reside on the left column, and Liabilities + Owner's equity reside on the right (i.e. Assets = Liabilities + Owner's Equity).

The key component for the balance sheet is to connect the things (left side) to the people who own these things (right side).

Assets (i.e. "What we have") are organized on the balance sheet in descending order of liquidity (i.e. how easy it is to covert an asset into cash).

The following represents the order on the Balance Sheet:

• Cash - readily available funds you can use now 
• Accounts Receivable - money owed to you (e.g. for items you sold on store credit but haven't received money) 
• Inventory - all available materials that will be sold; includes raw materials (lemon, sugar, water) and finished goods (lemonade) 
• Prepaid Expense - expense you paid beforehand, to be used in the future 
• Fixed Asssets -- items you use over and over, and aren't normally for sale

Liabilities + Owner's Equity (i.e. "Who owns it") are organized into the following: 

• Accounts Payable (Liability) - the value of the inventory you borrowed & now owe; usually have to be paid back in 30 daysNotes Payable (L) - the loan amount in money you borrowed and must owe; payable over long-termTax Liability (L) - taxes you owe the government Original Investment (Owner's Equity) - your personal money invested in your business Retained Earnings (O) - earnings from past accounting periods; shows retained "net profit" 
• Earnings [Week, Month, Year] to Date (O) - earnings from present accounting period; shows period's "net profit" (i.e. bottom line)

Income Statement

The Income Statement acts as the camcorder that illustrates how the Net Profit was gained between the beginning balance sheet and the ending balance sheet. It shows if your business was profitable in a certain period. To get Net Profit, use:

• Earnings = Sales - (Costs of Goods Sold + Expenses)Gross Profit = Sales - Cost of Goods Sold Net Profit = Gross profit - Expenses Note: We haven't deducted taxes, and dividends paid. These will subtract the earnings (i.e. Net Profit).

Cashflow Statement

When learning how to read a financial statement, remember this: The Cashflow Statement is probably the most important sheet in your small business accounting papers, as it keeps track of your cash.

Remember that you can be profitable, but without necessary cash, your business is in serious trouble. You can't spend your earnings, otherwise known as "paper profits"; you can only spend cash to fund your operating capital (e.g. fixed costs).

Good cashflow management means delaying your payables as long as you can, while speeding up your collection of accounts receivable money owed to you.

The cashflow statement accounts for collections, inventory paid, fixed asset investment, and expenses paid.

Learning how to read a financial statement is not that difficult. Most people avoid it because of this reason.

Once you understand the basic concepts on how to read a financial statement, you'll be on track to building a great company.

Why should you understand profitability ratio? It'll help you determine your company's financial standing. Most important, it illustrates how you're improving financially. Most small business owners only worry about their earnings when looking at financial statements. On the surface, a positive net profit may sound good; however, it doesn't tell the whole story. Use this Analogy If Phil spent $100,000 on products he sold for $101,000, you'd say he made a decent thousand dollar profit. Now, let's say Andrew spent $5 on a product he sold for $1005. Who came out better considering both made the same? If you guessed Andrew, you'd be right. He used his money more efficiently. It's vital that you know the profitability ratio of your company. To determine it, use these four ratios: Net Profit / Net Sales Gross Profit / Net Sales Net Profit / Assets Net Profit / Investment Net Profit Margin: Net Profit / Net Sales The net profit margin measures your company's overall profitability. This margin is usually between 5-25%. It's calculated after taxes and interest (If instead you include those two, you'll have your company's "Operating Profit Margin"). Gross Profit Margin: Gross Profit / Net Sales The gross profit margin measures your company's efficiency in producing goods. Remember, gross profit (i.e. Net Sales -- Cost of Goods Sold) considers only variable costs -- not fixed. You can improve your ratio by reducing inventory costs (e.g. buying in bulk, eliminate high inventory, etc.), or speeding up employee productivity. Return on Assets (ROA): Net Profit / Assets Your return on assets measures your company's use of resources. You can improve this profitability ratio by eliminating unneeded equipment. Sell your extra chairs. Rent cheaper, if possible. Spend more wisely on equipment purchases. Return on Investment (ROI): Net Profit / Investment Your return on Equity measures your company's use of invested dollars. You can improve this profitability ratio by following a similar approach on improving your ROA. Good company ROIs range from 20-35%. If it's negative, you're in trouble. It's essential that you use these four ratios in combination. Don't leave one out. Look to improve your profitability ratio constantly. Analyze it month-by-month. See where you could improve. Understanding this will greatly improve your small business.

Most entrepreneurs dread small business accounting because they think it's too hard. Once you study it though, it's actually easier than you think. It's also important because doing without it is like playing a basketball game without knowing the score: if you adapt too late, you'll fail. Here are the principles of accounting. Keep Sound Records It's important to know your scores. It's equally important to know you're looking at the right data. Relevant and timely material will tell you if you're gaining or losing profits, provide good decision-making, and help you budget accordingly. Importantly, it will help is distributing profits. Employees love rewards for their hard work, and knowing how the bottom line improved will guide you in rewarding them. You will also need to know relevant profits to distribute the dividends to you and your investors. Go with an Automated System Most established businesses today keep their records manually. Fortunately for you, there's a much better, quicker, and more accurate method. Though you could go with industry-specific software, a general accounting software for most small businesses is fine. To learn more, go read about small business book keeping software. How Accounting is Recorded The accounting system goes through a five stage process: (1) business transaction, (2) journal entry, (3) general ledger, (4) trial balance, and (5) financial statements. The following describes each step. Business Transaction All entries start out as business transactions (e.g. receipt, check). Journal Entry We record each business transaction onto a journal entry as they occur. General Ledger All journal entries at the end of an accounting period are then grouped onto a general ledger by their type (i.e. credits or debits). Trial Balance We then ensure the general ledger has equal sides of credits and debits. If it's not, we'll find out the errors involved. Financial Statements We then make a financial statement from data in our trial balance. As you can see, it's a simple process. Don't avoid small business accounting like most entrepreners. If you understand it fully, you'll have a great advantage on your competitors. Learn more about the topic by returning to the finance section.

It used to be rare to find good small business banks. Now banks have refocused their energies from Fortune 500s and the real estate market, to concentrating on the growing small business sector. That's great news for you. Commercial banks such as Wells Fargo, Citibank, and Bank of America all have prominent small business solutions. Their loan processing has never been faster. Usually, you can secure a loan of up to $25,000 if you qualify. Understand that banks will normally use hard assets (e.g. real estate, equipment) as collateral against your loans. What They'll Want Be prepared, organized, and know how to explain your business quickly. Know what you need, why you'll need it, and how you'll repay it. Most people who are denied loan requests are unprepared. Banks want to minimize their risk, so be ready to show them you're a good investment. Dealing with Commercial Banks Commercial banks will focus on the hard numbers like your credit rating and personal assets -- unfortunately, instead of your ambition and character. Hard numbers include your financial statements, tax returns, and your projected cash flow. They'll also want your business succeed for a couple of years before lending you their capital. Banks won't care how profitable your company is or will be. Remember, their main focus is on your ability to pay the principle and interest payments. On the other hand, if you develop a great relationship with your banker, he or she can pull some strings for you. Consider Community Banks If commercial banking sounds too impersonal to you, a community bank is a good option. They're much more flexible to small businesses. Unlike the challenges you'll find in when commercial banking, community banks will look beyond the numbers game when granting money. If you have the drive, the business sense, and the other intangibles needed to make a small business successful, you're in good shape for a loan. Pick the Right Banker Bankers come in wide varieties. Sure in small business banks, there's the jack-of-all-trades, the personal banker who just happens to do business, and the new college graduate. These are good for impersonal banking, but what you need is a banker with years of small business experience. Ideally, you'd also want the banker to have familiarity with your company's industry. Develop a Great Relationship with Your Banker It's the greatest banking advice we've received. Treat your banker like a partner. Give them details about your business on a consistent and frequent basis. That way, there won't be any surprises. And your banker can advise you financially along the way. They'll also be more open to provide you necessary loans because you've established your credibility that you're a serious, knowledgeable small business owner. Small business banks love that.

I know of only one business owner who doesn't use a small business book keeping software. He keeps meticulous records by hand, and when I confronted him with a better solution, he tells me he doesn't need it because he's been doing his records this way for 30 years. Good for him. For most of us without that type of experience though, we need something more robust. Fortunately for business owners, software developers have created full-featured and inexpensive small business accounting software that you can learn within a few hours. Of course you can keep your records with a sturdy notebook, but I recommend using small business accounting software to keep track of your finances so you can concentrate on your core business. This has an indirect benefit also: by automating your financial information now, you'll reduce your accounting expenses later. You'll also eliminate the headaches of learning to do accounting by hand, causing you to drastically improve your accounting knowledge. A basic small business book keeping software lets you track your cash, credit, and bank accounts; invoice customers and track payments; pay bills and track expenses; and create a budget. Most importantly, it provides you with financial reports and graphs to help you improve your small business. The most well-known small business book keeping software that you will come across includes Quickbooks, Peachtree Accounting, and Microsoft's Money Small Business.

Managing small business finance is one of the most important aspects in running your business, yet we tend to forget it because it's such a confusing topic. We've created this guide to help you understand it much better. It's divided into two topics:

• Finding Money
• Managing Money

Finding Money, Smartly

Watch out for those who tell you to accept all offers. For example, an inexperienced and aggresive investor will be a great burden. Finding the right sources will provide you the experience and expertise required to build your business effectively. Most importantly, they'll give you the needed control to grow your company. If you're just starting out or need to raise capital to fund an investment, use these small business finance guides to find smart cash.

1. Self-Financing: It's the best way to fund your small business.
2. Friends, Family, & Acquaintances: Free small business financing, but it can come at a cost.
3. Business Investors: Learn the basics of investment capital. Angel Investors: They're all around you. Know what to do.
4. Venture Capital: It's hard, but you'll learn the best way to get it.
5. Small Business Loans: Learn the basics of loans. Banks: Learn how small business banks can provide you capital.
6. SBA Loans: A great option if you can't qualify for bank loans.
7. For Women: Learn an SBA option to find a loan.
8. Small Business Grants: Learn the basics of getting a small business grant.

Managing Your Money

It's a topic most small business owners overlook, but it's vital. Without understanding where your company stands financially, you risk your entire operation. Knowing your numbers is a strong and vital management instrument. These tools will show you how to manage your small business finance efficiently.

• Bootstrap Financing: It's a must-read small business finance topic.
• Accounting Basics: Keep your funds in check. General Ledger: Learn to balance your books.
• How to Read a Financial Statement: Learn to keep track of your company's scoreboard.
• Small Business Book Keeping Software: Learn why you need a small business book keeping software.
• Budgeting: It's a great way to achieve your goals.
• Cash Flow Management: Understand why cash flow management may be the most important concept you'll ever learn.
• Analyze Your Financials: Knowing the profitability of your company determines its future. It's imperative you understand this section.

Most entrepreneurs depend on themselves for small business financing. It's quick, doesn't require a lot of paperwork, makes you frugal, and comes at no costly interests. That's why it's important to know what you have before you seek outside capital. Besides, bankers, venture capitalists, and the government will want to know how much you have before they lend you their resources.

Begin with Yourself

Self-financing is the fastest and best way to fund your business. Wall Street gems started out bootstrapping, such as Google, Starbucks, and Apple. Others that obtained venture capital before bringing in revenue shattered during the dot-com boom (most notably, Pets.com). When you use your money, you'll be a lot more careful. You usually have more than you think. Most people only look at their cash savings, but remember that you can liquidate your assets (i.e. turn stuff into cash).

Your Home Equity

A home is one great way to liquidate your assets. You can use it as collateral to fund your business. If you own a home, and have been building equity into it by paying house mortgages, you have a variety of options. You can acquire a mortgage, refinance your past mortgages, or obtain a home equity line. Tapping your home equity is low risk as compared to other small business financing options, and it's a good source to access a chunk of money. Some lenders have begun offering up to 100% of your home's value, though we highly discourage taking out this much. If you have one bad month, you will leave yourself homeless. Don't forget your other assets. Many small business entrepreneurs look to sell their stocks, home equipment, automobiles, etc. eBay's a great tool to turn your assets into cash.

Credit Cards

It's tempting to use credit cards for small business financing. Merchants blast you with promotions of the large amounts you can use. We highly discourage it. The rates will kill you in the long run. You'll have to cover large interest expenses monthly, which should've been used to reinvest in the company. There are much better options out there, such as converting your assets into cash.

Know Your Personal Balance Sheet

You'll understand what's accessible if you know your personal balance sheet. Your net worth will come from subtracting liabilities from assets. Assets will include available cash, savings, real estate properties, automobiles, investments, among others. Liabilities, meanwhile, include monthly bills, credit card expenses, home mortgages, any loans and debts, among others. It's important to have a good indicator of the available funds to build your business. You'll find that funding the company yourself will be a great small business financing option.

Many great programs exist to find a small business loan for women. One such program is the SBA Women's Pre-Qualification Loan. Entrepreneurs can get up to $250,000 under this program. How the SBA will Help You The SBA will choose an intermediary organization for you to work on your loan application. The organization will help you complete a solid business plan, help with your loan application, and send this loan package to the SBA. The SBA will conduct an analysis of your loan package. If the SBA approves the package, it will give you a pre-qualification letter to give to the bank. With the SBA's backing of you, the lending institution will usually approve your loan. This process is a great free way to find a small business loan for you.