What are Assets and Liabilities? | Small Business Legal Advice
As a small business owner (often wearing all the hats and doing all the things), there is so much to know and so much to do. In our experience, legals and numbers tend to fall to towards the bottom of the list.
You don’t need us to tell you that it shouldn’t be this way!
And it doesn’t have to be.
When it comes to all things business legals, we’ve got you covered. And when it comes to all things numbers, whilst we can help you out a bit, we will put you in touch with the experts when the time comes. First and foremost here is a great bookkeeper who is a BAS agent, who can work with you to support you with your numbers in business (and more). We work with the team at Accounted For You, and we cannot recommend them more highly for other small business owners.
For now, let’s dive into something that all small business owners really need to be across -assets and liabilities. The assets and liabilities of your business are accounted for in the balance sheet for your business. Your balance sheet is important because it’s an indicator of the health of your business.
Assets are what your business owns and can convert into cash. For example, tools, cars, computer equipment. Also, things that can be converted into cash such as your business inventory and accounts receivable are assets, too.
Liabilities are what your business owes to others. For example, loans provided to your business, debts you owe other businesses, and salaries for your team are all liabilities because they are owed to others.
As a business owner, having a thorough understanding of your liabilities and assets is important for several reasons, so it follows that paying careful attention to one very important asset - accounts receivable - will go a long way to keeping your finger on the pulse and maintaining a healthy cashflow.
What do we mean by accounts receivable?
Accounts receivable is the accounting term for money your business is owed by clients or customers. When you issue an invoice to your client or customer, the amount they owe is an accounts receivable item until it is paid. Once your invoice is paid it becomes cash in the bank – which is what every business wants.
So those unpaid invoices are real assets for your business, and it is important that you spend enough time ensuring your invoicing and collection processes are streamlined so you get paid on time – every time!
As you know by now (from the other resources we share), setting out your payment terms clearly in your business terms and conditions; on your website if applicable, and at the point of sale (if you sell online) is vital if you want to be paid, reliably.
If done properly, your legals (business terms and conditions and/or your website terms and conditions if you sell online) will ensure your clients or customers know their obligations; your fees; cost of goods or services; how and when they must pay you, and when. Properly tailored business legals mean that when you do issue invoice your clients, you make it easy for them to pay promptly because they already know what to expect. And you make it easy for yourself because you will spend less time clarifying payment terms and becoming involved in back-and-forth communications, or worse, disputes. (In case this is new to you, you can check out these blog articles that you will find really helpful: How Your Business Documents Can Reflect Professionalism and Business Terms & Conditions & Website Terms & Conditions? What’s the Difference, and Do I Need Them?)
Invoicing
When you create your invoices make sure they align with what is outlined in your business legals - that way there are no surprises for your client. Once you issue an invoice to your client, make sure you have internal processes and systems that help you keep track of payment due dates, so you can follow up any overdue invoices before they become an issue.
If you are keen to dive a little deeper into your processes and systems around getting paid, our course Getting Paid Made Easy covers all of this in detail for you and it takes you through some super helpful and practical advice and guidance on setting up and following invoicing processes (and more!). You can check out the course here.
If you have done all you can to follow up unpaid invoices, but you’re having issues and it’s impacting your balance sheet, you still have options. Your business lawyer is an excellent resource to turn to for support, to help you navigate your way forward and strategise an approach for you to take with the clients withholding payments.
If you get to the point where you need to consider writing off the debt – and honestly, we hope doesn’t happen to you because it really doesn’t need to get to this point (hint, if this is you, then you really will benefit from diving into to the Getting Paid Made Easy course), you need to take care to ensure this is all reflected properly in your accounting records so that the GST and tax are accounted for. This is where we will put you in the hand of the experts, and in this case, that will be Lisa at Accounted For You who will have your back.
If you want to learn more about small business assets and liabilities check out this blog post by Lisa at Accounted For You, Assets and Liabilities Explained.
As small business lawyers, we work with you to help you set up your business properly, right from the start. For more helpful information check out our blog posts Legal Advice for Small Business l Ultimate Guide and Australian Law 101 – Guide for Small Business. Working together should be easy, and you should feel supported and confident in who you are working with.
Want to get in touch and find out more about how I can help you setup your business? Click here to enquire now.
