What Is a Business Transaction? Definition, Types, and More

VWB Blog 2 years ago 0

Around one in five new businesses fail during the first two years of being open. If you don’t want this to be your fate then there are all sorts of things you’ll need to learn. A lot of this information you’ll be able to pick up as you go along, but other things you’ll want to know right from the outset.

Certainly, you’ll need to be aware of the basics. What’s legal, what’s not, and what are the terms to be aware of? That’s why today we’re going to look at the definition of a business transaction and what it means in the context of your business.

Read on to learn all about what constitutes a business transaction and why this is important for you to know.

What Is a Business Transaction?

The term business transaction is something you might have heard from your business accountant or business lawyer before. But what does it mean and what potential consequences does it have for your business?

In short, a business transaction is any payment recorded in your business’s accounting system. It could be you paying a third party or a third party paying you. Some examples of common business transactions include:

  • Selling a product to a customer
  • Paying for a business dinner
  • Paying wages to your employees
  • Selling shares to an investor

The list goes on and on, of course, but you get the picture. So, what do business transactions mean for your business? Why are they so important?

Why Are Business Transactions Important?

Business transactions are important to keep an eye on for many different reasons. For a start, they’re used in financial accounting to track your spending and business income to ensure you’re financially healthy.

But your accountant isn’t the only one who could be looking at the types of transactions you’re making. If you’re selected for an audit by the IRS government officials will be combing through each and every transaction you make in the relevant year to determine if all of your business dealings are above board.

Similarly, when you’re selling a business your buyer will want to check how financially healthy the company they’re about to purchase is. They’ll want to take a look at your books and when this happens you’ll need to have your transactions in order. There are lots of other things that you’ll need to do to get ready to sell your business, of course, but this one is extremely important.

The same goes for when you want to take your company public. An IPO is an exciting prospect for a business but it also means opening up your financial inner workings for the world to see.

Make Sure Your Finances Are in Order

As with your personal finances, you need to make sure that your corporate finances are always in order. This means staying on top of every business transaction in your books.

If you’d like more expert financial advice, don’t forget to check out the rest of our site now.

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