Accounting is probably one of the most important things a business owner needs to invest in when starting their business. Whether it is educating themselves on the process or researching and hiring a trusted individual to work their books, it is what keeps the business together and will help the owner be able to make better decisions regarding their business in the future. Accounting provides vital information for the business owner such as, profit and loss, cost and earning, as well as liabilities and assets. Not only that, but to stay out of trouble with the IRS and your local Secretary of State, you need to keep excellent records so that you can stay on top of your tax payments.
The Purpose of Accounting
Considered the “Language of Business,” accounting is used to communicate through different reports what is going on with the business at any given time.
Objectives of Accounting:
As the backbone of the accounting system, proper recording of transactions in and out of the business is vital to keeping up to date and organized records. By keeping accurate and organized documentation of their transactions, the business owner can pull from them at anytime and make on the spot decisions regarding their business.
Planning and Budgeting
An essential part of running a business is the ability to plan and budget what resources are needed and where and how these resources will be used. This also allows the business owner to anticipate any hardships they might encounter and plan accordingly to prevent that from happening.
Business owners have the arduous task of having to make on the spot decisions daily. With the right accounting system and skills, they can make decisions on the prices they charge for goods and services, what resources they might need, what improvements to current resources are needed, and what financing they might need to enable them to grow their business.
Performance of the Business
It is incredibly important that a business owner know where they business stands day to day. By viewing their financial reports on a regular basis, they can establish what is working for their business and what areas they might need to improve upon. It will also allow them to be able to compare themselves to their competitors.
By viewing financial statements at the end of the accounting cycle, the business owner can see where their business stands financially at that time. They can view how much capital they invested that quarter, their profit and loss, along with all of their assets and liabilities.
Businesses often fail due to improper knowledge of cash handling. By understanding a businesses liquidity, the business owner is always knowledgeable of all cash and resources that are available should they need to pay off a financial commitment quickly. In the long run this will prevent the business from having to go through a bankruptcy and will help them detect any bottlenecks in their process.
If a business owner needs financing, then it is important that they are able to pull up their company’s historical financial records along with their financial projections for the future of the company. Banks and individuals need to know that where they are investing their money is solid, has been doing well, and has a plan to continue doing so.
Control of Business
Theft, fraud, entry errors, damage, and bad management are real worries for any business owner. By having a proper accounting system in place, these are easy to spot when they happen. The accounting system itself will flag anything that looks suspicious and in doing so protect the owner’s business and assets.
When anyone starts a business, they enter legal contracts with their state and government that they will maintain accurate financial records and report them accordingly. Financial reports are shared not only with shareholders but also with tax authorities and regulators.
Why is Accounting Useful for Small Business Owners?
Most people when starting a small business know exactly what they are doing. They know they want to be successful, but in order to do that they have to dive into what it takes to run the business properly. Often having a small budget and limited resources, having the right accounting tools is integral for them to be successful, and will provide them with everything they need to grow their company. Listed below are the reasons accounting is integral to a small business:
- Cash flow tracking. One of the biggest worries for a small business owner is that they will run out of money before they ever gain any real traction. By coming up with a financial strategy ahead of time and adding proper bookkeeping skills, they will be able to prevent this from happening.
- Understanding business concepts. To be successful, a small business owner must learn about fixed costs, variable costs, and how to accurately plan out a project if needed.
- Business well-being. Small business owners can understand where their business always stands by regularly viewing their financial statements. This allows them to make changes if needed so that they can grow their business to its fullest potential.
- Fraud detection. A good accounting system will help a small business owner detect fraud immediately. Whether it is an employee or customer.
- Audits. Having a good accounting system is integral when it comes to facing an audit. By being able to pull up accurate financial statements at any time, a small business owner can have peace of mind knowing they maintain the proper records should they ever need them.
- Financing. Small businesses are considered risky investments. Therefore, it’s important for a business owner to keep an accurate financial history and are also able to show banks that they have a strategy in place for the continued success of their business.
Every small business owner will benefit from having an accounting system in place. This allows them more control over their business’ growth and success. Not only that but they will be able to save large amounts of money by regularly viewing their financial records.
Why is Accounting Important?
Accounting helps the business owner to collect data and organize it in a way they can easily interpret it. By regularly viewing their financial reports they are able to not only maintain their business, but to continuously grow it.
Many small business owners believe that they need to be the ones in charge of their accounting, and some simply cannot afford a professional. If they are to invest in anything regarding their business, proper handling of their finances would be it. Hiring a professional can take some stress off the business owner and allow them to put all their focus on the daily running of the business itself.
Reasons to Invest in an Accountant
- They look at all your financial data and make suggestions on how to improve your business.
- Are knowledgeable of Generally Accepted Accounting Principles (GAAP) and prepare your financial statements in accordance with them.
- Advice unique to you and your business.
- A financial advisor that will assist you in the daily running of your business, budgeting, and real time assistance when you come across a problem.
- Unbiased and knowledgeable opinion.
- For tax purposes they will alert you to deductions and prevent and anything that can trigger an audit.
Accounting software can be just as beneficial as hiring a professional accountant. It syncs directly with your bank to provide you with seamless up to date information for your financial records.