Of the many different aspects of running a small business, one of the most crucial ones is understanding the different types of transactions your business will be involved in.
This can vary depending on your industry, but there are some general categories that every startup owner should be aware of. Below, we will discuss the small business transaction categories you should know and master as a startup owner.
Yearly Transactions
One of the first things you should do when starting a small business is to understand your yearly transactions. This will give you a baseline for what to expect in terms of revenue and expenses. You can use this information to plan for the future and ensure you are on track to meet your goals. The common types of yearly transactions you should give weight to include:
Income Statements – This will show you your revenue and expenses for the year. This is a critical document for understanding your financial health and making sure you bring in more money than you are spending.
Cash Flow Statements – This will show how much cash is coming in and going out of your business. This is important to track because it will give you a good idea of whether or not you have enough money to cover your expenses.
Balance Sheets- These will show you your assets, liabilities, and equity. This information is essential for understanding your net worth and ensuring that your business is financially stable.
Monthly Transactions
Monthly transactions include all the transactions that happen in a month. This information is important for understanding your spending patterns and ensuring that you are not overspending. At the end of every month, you should review all the transactions executed and categorize them. This will help you keep track of your spending and save money in the long run. Some of the transactions you can include in this category include:
Payroll Register – This is a list of all the salaries and wages you pay your employees in a month.
Sales Invoices – This is a list of all the products or services you have sold in a month.
Accounts Receivable Aging Report – An accounts receivable aging report shows how much money your customers owe you.
Accounts Payable Aging Report – This report shows how much money you owe to your suppliers.
Bank Statements – This is a statement from your bank that shows all the transactions made in a month.
If any of these transactions occur less often in a month, you should consider having a quarterly or bi-annual transaction category to cater to them.
Daily Transactions
These are the many small transactions that occur in a day in your business. As a small business owner, you need to watch these small but crucial transactions.
Purchase orders – These documents show the products or services you have ordered from your suppliers on a particular day.
Customer Invoices – This document shows how much money your customers owe you. It’s best to generate daily invoices immediately after a transaction is made to keep track of each when payment time comes.
Bills – This refers to the money you need to pay for your business’s various utilities and services daily. These can include water, electricity, gas, internet, and more.
While there are many other daily business transactions you can record, it’s important to learn the differences between each transaction you record to enter only accurate data. For instance, purchase orders vs. invoices are some of the most confusing for new business owners.
When you first start a business, it can be tough to keep track of all the different transactions you need to record. However, by learning the difference between each type of transaction, you can ensure that your records are accurate..
