With more businesses turning to technology and automated systems to handle their operations, accounting is one area where professional expertise is a necessity. The primary reason for accounting is so businesses can make informed decisions regarding their finances.
What may seem like excessive admin is in fact key for monitoring new avenues of growth and various outgoings. Failure to do so often leads to businesses failing in their first year or shortly after.
Here we take a closer look at the benefits of accounting and why it is so important for small businesses and startups.
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Compliance with legal requirements
It is a requirement that all businesses, regardless of size, keep detailed records about the company itself and all financial and accounting information. These financial records should be disclosed to tax authorities, shareholders, and other regulatory bodies.
This can be a large undertaking for small businesses, who may decide to hire a professional for their accounting services instead. These experts can even help to identify tax deductions that the business was originally unaware they were eligible for.
A regulating body can ask to review records at any time, so books must always be accurate, organised, and accessible. Failure to keep up with statements can lead to legal action being taken against the business.
Assessing the performance of the business
Compiling all the data from the business into a financial statement is highly beneficial for determining its performance. Typically, reports will identify and measure key performance indicators (KPIs) that will assess whether the business is overperforming or underperforming compared with previous years.
This will give a clear indication as to what tasks and activities should be prioritised in the future and what can be removed altogether to improve output and retain budget. For example, are there ways to reduce overhead costs? Could there be unexpected expenditures due to inflation that will need to be accounted for?
Improving and tracking cash flow
It is essential for all small businesses to be aware of how much cash is on hand at any given time. Cash flow is often overlooked but a business can quickly find themselves in hot water should no cash be available for spending, regardless of how profitable it may seem on paper.
Cash flow problems can result from clients who fail to pay on time, an overflow of stock, excessive overheads, and much more. While these aren’t always in a business’s control, an accounting team should be able to ensure that the cash flow is strong enough to guard the company against potential risks.
To improve and manage cash flow, several measures should be put in place, including costing services appropriately, providing easier ways to pay, and sticking to payment terms. Hiring a certified accountant to handle these situations is the best way to monitor these steps while enabling owners to run their business efficiently.