As a small business owner, don’t be tempted to operate without proper accounting just to cut costs. Accounting is necessary for your business as it keeps track of your expenses versus your revenue. This way, you’re able to know the financial health of your business at any point in time.
The Need For An Accountant
For successful business accounting, you need to collect huge amounts of data and analyze it in accordance with Generally Accepted Accounting Principles. Like many other small business owners, you may think it’s easy to personally manage your business finances. But experience shows that the likelihood of you getting overwhelmed and disorganized in your paperwork is very high.
Delegating the financial aspects of your business to trained professionals is a better approach. Doing so will also help you prepare your business’ financial reports in the correct way. That’s important as every jurisdiction has its own compliance requirements that you must meet.
Also, professional accountants can give you customized advice based on their assessment of your business finances. So, don’t hesitate to search for accountants near you and get your finances right from the get-go.
Here are more ways accounting will bring success to your small business:
1. Helps You Meet Legal Regulations
In many states and countries, it’s mandatory for small businesses to keep proper financial records and share the reports with local tax authorities and shareholders. Failure to do so can result in hefty fines when you’re caught. If the matter is serious, you can face imprisonment. Such penalties and jail terms will have a negative effect on your business.
To avoid such setbacks, see to it that you properly account for every financial transaction in your business and that you meet all legal requirements. This will help you to consistently remain in operation without the fear of being discovered by business regulatory authorities.
2. Makes Everyone Accountable
Routine accounting instills a sense of accountability in every person who handles your business cash. They know that any misappropriated cash will soon be detected and investigations will launch to determine the whereabouts of the cash.
This is a great way to prevent intentional theft and mismanagement of business funds, as well as careless mistakes in accounting. Such control of your business finances is important if you’re to survive in business for long.
3. Helps You Assess Business Performance
Some of the most common key performance indicators for small businesses are gross profit margins, liquidity, and cash availability.
You may have set a target to generate 10% profits by the end of your first year of operation. Without accurate financial records, you’ll never know if this objective was met. And, therefore, you won’t be able to conclude whether your business is performing well or not.
However, with proper accounting, you’ll be able to outrightly tell whether your business met the target or not. Additionally, you’ll also know how far you got above or below the target, helping you make any necessary adjustments.
4. Helps In Decision-making
By knowing how much profit or loss you’re making and how cash flows in your business, you’re in a good position to make decisions, like the following:
- Pricing of products and/or services: Very little profit margins may be an indicator that your product pricing isn’t well thought out. If this is the case, you can slightly increase the product prices so you can recover your expenses and still have handsome profits.
- Need to cut operating costs: If your business fails to make profits annually, you may want to reduce your expenses by implementing measures like laying off some employees, reducing rented space, shifting to cheaper business premises, automating some business processes, and purchasing energy-efficient machines and devices.
- Lending policies: If you give credit to customers to such an extent that your business is always left with little or no cash, you can consider changing your credit terms.
5. Helps You To Project Into The Future
Historical financial data helps you analyze business trends and arrive at meaningful conclusions. For instance, you can determine the seasonality of your business.
By knowing the particular months your products sell in big numbers, you can scale up your production during these months and scale down during those months that buyers significantly reduce in numbers.
Also, by knowing your average monthly or quarterly profits, you can calculate the total profit you’ll accumulate in the next five years or so. Such projection can help you make solid financial plans, especially when it comes to the decision to expand.
6. Helps You Get Financed
Most lending institutions ask for financial statements from businesses before granting them loans. Typically, you’ll be requested to avail financial records for the past three years when you approach them for a business loan. If your accounting books are in order, you stand a chance of receiving the much-needed loans. But if you have nothing to show, you may be denied the loan.
Remember, loans are important as you can unexpectedly find yourself in financial turmoil. Not that you failed to plan properly, but it may be anything like a government directive that requires you to invest heavily so as to comply with new regulations or even a non-insurable natural disaster that destroys your essential business equipment, leaving you in great need of money.
Getting a loan in such troubled times helps you to resume your normal business operations as soon as possible. So, it’s good to ensure that your business always remains creditworthy in the eyes of lending institutions.
There are plenty of reasons to maintain accurate financial records for your small business. Operating a business without proper accounting is like walking in the dead of night without any light to illuminate your path; you can’t tell where you’ve been nor where you’re heading to.
For that reason, make sure that you start keeping financial records as soon as possible. If your schedule doesn’t allow it or you don’t have the required expertise to do so, consider hiring professional accountants to handle the accounting part of the business for you.