In the heady early days of running a business, accounts might not be at the front of your mind. Pretty soon though, they will be.
Perhaps you’ll find there isn’t as much profit as you hoped for, or maybe you’re suddenly on a tight deadline to get your tax return in on time.
Accounting matters hugely in business. It’s easier to give accounting the attention it demands when you totally understand the reasoning behind it.
Why Accounting is Important
Strong accounting sets your business up for the best chance of success. Some businesses are more vulnerable than others, such as start-ups with limited experience or those running on the sole trader model.
Poor financial management is one of the main reasons why some businesses fail, so learning accounting (even online) is vital for business health. It also keeps you on the right side of the law since up-to-date books are a legal requirement.
Everyday practical reasons to get a grip on your business accounts include:
- Project Costing – you need to know where you stand financially if you want to accurately price projects or goods for sale. Without cost accounting you run the risk of undercutting yourself, so the business becomes unsustainable.
- Improving Cash Flow – slow paying clients or customers can ring the death knell for small businesses. They cause bottlenecks through withheld cash, meaning you may not have the funds to finance future projects. Without a smooth flow of cash, it’s hard to maintain momentum.
- Fraud Detection – money lost through theft and fraud is a real danger, and it can be hard to detect. From petty pilfering by employees to false invoicing, you’re far more at risk if you don’t keep a close eye on your accounts. Learn more about types of fraud here.
- Banking Advantages – you’ll be able to confidently approach your bank manager for financial assistance (should you need to) if you can demonstrate a sound understanding of your accounting and financial situation.
- Easier Tax Returns – the annual headache becomes less troublesome when you have up-to-dates books to work from.
The Purpose of Accounts
As well as the day to day, week to week advantages of keeping good books, accounting has a few bigger, overarching purposes:
- Decision Making – when to expand, when to cut back, where to make cuts, what to charge, when to raise prices or hire more staff… they’re all decisions that are better made with one eye on the bank balance. It’s easier when you know what that balance is.
- Performance Analysis – is your business growing? If not, why not, and what could you do to turn things around? From your accounts you can draw up financial reports to help you make informed decisions about current and future performance.
- Budgeting – sometimes business is good and the cash rolls in, other times it feels like you have to hunt down every penny. Your accounts can help you anticipate the lean times or foresee upcoming expenses.
Should You Keep Your Own Books?
This is the eternal question. As the business grows and develops, your accounts will naturally become more complex. This is especially true if you move from being a sole trader into a partnership or a limited company. Understanding tax laws and regulations, including information on tax return hong kong is crucial for running a successful business. Check this out to ensure your accounting practices are in compliance and your business stays on track.
There are three fundamental pathways you can take, and sometimes a mixture of two or more is a reasonable option:
- DIY Accounting – you’ll take care of everything yourself, from daily transaction logging to issuing invoices and compiling the annual tax return.
- Accountants – invaluable for analysing your financial data, preparing financial statements, and submitting your tax return. They can also advise on potential trouble spots and help you avoid them.
- Bookkeepers – will help with the day-to-day maintenance of your books. They’ll also deal with your invoices (incoming and outgoing) if you want them to. They’ll make sure your books are in a ready state for presentation to your accountant for end of year compiling.
Some business owners like a more hands-on approach than others. They enjoy working with figures and being fully aware of how the business is doing financially. If this describes you but you’re not sure about some aspects, a course in professional accounting can give you the edge.
Others take a hybrid route, hiring either a bookkeeping, and accountant or both. As the business owner, you’re the only one who can decide which is your personal best route. But when it’s time to make that decision, it’s important it’s made from an informed position, and you understand all the ramifications.
In some ways, accounting is the lifeblood of a business, keeping the system and process healthy and ensuring it’s strong for the future.
You’ve figured out how important accounting is for your business, now it’s time to consider how you can use platforms such as Bloss to create a supportive work culture. If you have staff working for you, apps such as this can really make a difference to their wellbeing, and potentially productivity.