Some people may question just how important accounting is. The truth is that many small businesses would fail without accounting.
There are many things that good accounting helps to keep in order when it comes to a small business.
Why is accounting important?
Proper Budgeting for Small Business
A business accountant can help you develop a workable budget. Let’s face it, as a small business; it is hard to survive your first few years even if you have everything in order.
If you look at the most significant reasons businesses fail, you will see just how essential it is to have a proper budget.
For example, 14% of failed businesses said they did not correctly understand finance. On top of that, 25% of failed businesses said that the reason why they failed was that they had poor management or no planning.
This means that almost 40% of failed businesses failed to plan out a budget properly or fully understand their financial situation. With a proper budget, you can see what you need to spend in each area of your business, and you can get an idea of your limits on expenses.
If you determine how to navigate budgeting as a small business, you can significantly increase your chances of success.
Accounts Receivable
The next thing proper accounting does for your business is that it helps keep track of the money you need to pay out and get in.
For example, let’s say you have ongoing business with your clients. These clients have partially paid you for owed balances, but you are waiting for further payments.
Viewing your accounts receivable allows you to take your books one step further. Instead of looking directly at your company’s bank account to see how much money you have, you should also look at this to see how much more you expect to be coming in the next week and month.
What this does is that it allows you to plan for the money that is about to come in, and it keeps your customers accountable for expenses that they might try to slip past you.
Noting Transactions
If you have a business that sells products, then proper accounting can help see your business’s transactions.
Say you have a sporting goods store. Then, you sell equipment for football, and you sell tackle pads for rugby. These can be two items that you have newer models of which you hope are doing well.
Well, this is where good accounting can help you. Accountants help you keep track of every transaction that is made within your business. With this, you can see what items are selling and what items you are having difficulty moving.
Once you know the transactions that are occurring, you can use accounting to help you with this next aspect.
Making Future Decisions
Once you have an idea of how your business is performing and how your products are performing, you can use the accounting notes described above to make future decisions for your company. These can be decisions to expand but also more difficult decisions.
An example is if you experience a 33% loss of sales, your company will likely have a lot less money to work within your budget. That means making difficult decisions like what to cut back on.
You can also determine how to expand your business if the accounting finds sales are up by 33%. You may want to order double the materials needed for your product, hire more staff, open another factory, and more.
Tax
Finally, an essential part of accounting is doing your taxes, right? While it may be annoying for businesses, it is a legal requirement.
Your small business needs documented support for income and payments. It helps legitimise your business and keeps you out of
Tax Office problems.
Good accounting
[practices will ensure that you have the required paperwork to show that you have paid the correct tax. Typically, these are documents related to accounting and bookkeeping.So, ensure that you have this in order if the ATO comes knocking.
Protect Your Small Business
These are just a few ways a good accountant can help protect your small business. Accountants can be essential to your operation, whether it is making sure you are filing the correct taxes, planning a proper budget, keeping track of transactions, or giving you guidance for future business decisions.
So, do you need a business accountant by your side? Book a meeting with us today to see how we can help you.
