Practical Resources: Financial Management by Debra L. James, EA

Financial Management 101

You’ve taken the plunge and started your own ministry, congratulations! As a business owner another part of your work begins as you set up an accounting system. Accounting does not have to be fancy or complicated. What is essential is your commitment to do it at all. It seems that many business owners spend a lot of their time doing, making or selling their product or service. They put the basic and necessary tasks like accounting on the back burner. Warning, do not let that happen to you! Keeping your financial records clean and current is as important to your business as anything else you do.

Start with a bank account. Keeping financial transactions that relate to your enterprise separate from those of any other activity, be it your personal business or another business venture, and makes record keeping much easier. If you can conduct every financial transaction through your checking account, accounting for profit and loss is a snap. For instance, if every dollar you collect from fees for service is deposited in the bank, all you’d have to do to record these fees is add up all of your bank deposits. Just as easy is the recording of expenses. If everything you pay for is by check, all you need to do is go through your check register and categorize the expenses such as office supplies, telephone, rent, etc. Ultimately, the difference between the deposits and expenses will be your profit or loss.

Now you want to get fancy, so you buy a computer and want all financial records to be in a formal accounting system. Some accounting software acts just like a check register on a computer. The basics are the same, but often you will be able to produce accounting reports. A chart of accounts is a list of assets, liabilities, owner’s equity and expenses. Most accounting software already has a chart of accounts built into it, allowing you to add or delete accounts.

Once you have a system in place, it’s your job to know how you can use it. The most common financial statements are the balance sheet and the income statement. The balance sheet reflects your assets, liabilities and owner’s equity. The income statement reflects your income and expenses with your bottom line, profit or loss. Studying these statements will help you formulate budgets, determine where your weaknesses and strengths are, and if your ministry is achieving the financial goals you have set for it.

Debra L. James, EA is an accountant and owner of Genesis Accounting & Management Services in Amherst, Ohio. She is in her seventh year in her accounting practice following an accounting and business career spanning the last 25 years. She can be contacted at genesisacct@yahoo.com