Three Reasons Small Business Owners Need Accounting

Accounting is important for small business owners as it helps the owners, managers, investors and other stakeholders in the business evaluate the financial performance of the business. Accounting provides vital information regarding cost and earnings, profit and loss, liabilities and assets for decision making, planning and controlling processes within a business.

The main objective of accounting is to record financial transactions in the books of accounts to identify, measure and communicate economic information. Moreover, tax reporting agencies require you to keep books at a minimum level that tracks income and expenditure.

1. Make Predictions   

One of the business owners’ objectives is to make compelling predictions about the future in a way that attracts others to work on a shared vision that will change the world in some way.  A group of people who have a common view of the future can work together to gather assets and to design and create processes that will help attract and satisfy customers in a way that makes the most efficient use of physical resources.

A business owner can make predictions through three basic projections: future revenues, future operating costs, and assets needed to service future demand.  Accounting and finance can help because they give us analytical tools to make projections and to link what we expect to happen in the real world with the value added by our efforts

In the startup stages of a venture, projections can unite a team by making a fuzzy vision more concrete, measurable, and actionable. Steps can be broken out so progress can be measured. Quantitative goals can motivate. In the later stages of your business, financial statements can measure whether earlier predictions were accurate.

2. Making Commitments

In order to build your business, you have to make commitments in time, energy, and money. In essence, entrepreneurs make four types of commitments: (1) sunk investments in long-lived or fixed assets like a building or a machine; (2) promises to pay a fixed amount over time to use a fixed asset (rent) or a person’s time (salary); (3) borrowing money to expand; or (4) making working capital investments like inventory or customer credit, that eventually will be sold or recovered.

Costs accounting – measuring costs and relating them to activity – is the key to making good commitments. You must understand the incremental impact to profits and cash flow of every incremental sales, operational, or financial decision.

3. Measuring Progress

In order to assess the performance of your business, there are many critical questions that need to be answered. Is the business running smoothly? Is it successful, or is it failing? What part of the operations set-up act as bottlenecks and what parts are acting as growth drivers?

The answers to all these questions lie in regular financial monitoring of the business. Without adequate profits, regular flow of cash, and strong sales numbers, no business can be successful. That is why the business owner or senior management should ask for regular reports from the organization’s accountants in all these areas.

The basic reports that every company needs to produce are the balance sheet and the profit/loss statement. They are not only vital indicators of the performance of the business, but they are also required statutorily. They give an overview of the financial health of the business, and in a nutshell, tell the owners everything that they need to know about how their enterprise is faring.

Finally, measuring progress helps you spot trends in revenues and costs early, so opportunities can be exploited and problems corrected before they pose a real threat to your business.

Why Hiring an Accountant or CPA is Important

Accounting necessitates huge amounts of data collection and organization of information in a way that can easily be interpreted by the management. Business owners need to keep tabs on the operating costs, changing revenues and dividends to make strategic decisions.

As a small business owner, it might be tempting to manage the business finances yourself, but financial matters can be delicate and may require a trained professional to handle them correctly. Professional accountants assist business owners in making smart fiscal decisions while adhering to the compliance requirements.

Tasks Your Accountant Can Handle

Outsourced accounting services can provide many services. Below we have outlined some common ones:

  • Analyze the financial data and determine areas for improvement. This is crucial for the long-term health of the business
  • Prepare financial statements based on the Generally Accepted Accounting Principles (GAAP)
  • You will get customized advice based on your unique business needs
  • Using a third-party accountant ensures that you’ll receive unbiased information that is verifiable and objective
  • The accountant acts as a financial advisor and helps you with budgeting and monitoring cash flow on a steady basis. This will allow you to navigate any hurdles that occur in real-time
  • It helps you during tax season as accountants can identify potential deductions and help avoid audits

Limitless Investment & Capital Outsourced Accounting Services- Reduced Costs, Better Control, and More Informed Decisions

Limitless Investment and Capital’s outsourced accountants offer complete accounting services that combine best practices, top-to-bottom process reengineering with web-based workflow systems to reduce errors and lower costs while improving your controls and decision-making. Call us TODAY to get started!