Building a long-term business in today’s globalized economy requires the correct tools and information. Accounting is central to that.
Accounting helps businesses make significant, calculated decisions and plan for monetary growth. The work of an accountant is imperative in controlling and stabilizing the financial well-being of an organization while holding each area accountable.
Without an expert who can understand, track, analyze, and communicate financial information, your business could commit common, costly mistakes that you could otherwise have avoided.
It’s not just about avoiding costly errors, though. Accounting can set up your organization for substantive growth.
From liability and accountability to financial planning, learn why accounting is so important to a business and what it can do to help yours.
What is Accounting?
Accounting is foundational to any successful company or organization in any industry. Are you spending too much? How much profit are you earning? Should you hire more employees? These are all questions that can be answered with accounting and help owners paint a clear picture of their financial position.
The purpose of accounting is to record, analyze, and summarize financial transactions to gauge the financial health of a business and report it to the necessary entities. Accountants play a significant role in helping a company make informed decisions, develop strategies, and ensure statutory compliance.
What Are the Responsibilities of a Business Accountant?
Whether it’s healthcare, manufacturing, technology, retail, etc., accounting is vital to any industry. An accountant’s work helps owners to maintain and expand their business in several ways, such as:
- Preparing, analyzing, and organizing financial records
- Tracking income, expenditures, and debt
- Ensuring statutory compliance
- Filing and confirming the accuracy of documents and taxes
- Identifying and communicating operational inefficiencies
- Properly budgeting and controlling spending
- Identifying worthy investments
- Conserving money
Accountants can work directly for a company or in private sectors, accounting firms, or government agencies. Some may even work and be responsible for many companies. A team of accountants may even be necessary for businesses with larger and more complex finances.
What’s the Difference Between Bookkeeping and Accounting?
While both bookkeeping and accounting help you manage your finances and record business transactions, there are significant differences. Generally, bookkeepers focus more on a business’s transactional and administrative aspects, such as keeping records of transactions, managing payroll, and producing invoices. Accountants look at the bigger picture and give business owners a comprehensive insight into where their finances stand, how they can improve, and what they can expect from their business in the future.
The main difference between the two is that an accountant can perform the duties of a bookkeeper, but a bookkeeper is not qualified to do the work of an accountant.
Reasons Why Accounting Is Important
Hiring a small business accountant can have a significant impact on your business. The following are several benefits of accounting:
Accounting Laws and Regulations
Although the laws and regulations vary from state to state, having an accountant is required to stay legally compliant and ensure accurate tax returns. The last thing an owner wants for their business is to fail an audit.
An accountant’s role in gathering and maintaining timely and complete records is critical in addressing how much you owe in taxes and avoiding any red flags or penalties.
Business Accountability and Fraudulent Activity
A solid accounting system allows business owners to protect their assets by recognizing fraudulent activity before the company suffers long-term losses.
A systematic record of your finances also reflects well on the company and assures investors and other interested parties about the proper allocation of funds.
Regardless of the size, running a business relies on many revolving parts. At any time, your business records may need to conduct an internal review or comply with an external audit. An organized, errorless accounting process can help you stay out of trouble.
Having an accountant to manage and file financial documents accordingly can save a company time, money, and headaches.
Accounting reports enable owners to track the performance of different areas in the company.
Staying up to date on the records of day-to-day operations allows the opportunity to analyze what works and what doesn’t from a financial standpoint.
Budgeting and Financial Planning
Like the saying goes: fail to plan, plan to fail, and when it comes to managing a business, it couldn’t be more accurate. Accounting is key to the growth and development of a company.
When it comes to planning, assessing previous financial data lets you make projections based on cash flow and current business trends.
Financial data also allows a company to review resource allocation and make the necessary changes to maximize their use and create a more profitable future.
If you plan on recruiting the help of a lender or investor to help fund your business, having clear and concise financial data will be in order. Statements showing the precise details of expenses, gross profit margins, and projections of your organization can help back your claims and secure the deal.
Institutions such as banks and trust companies also require businesses to file their financial statements, which can be daunting for many small business owners. Access to an accountant’s organized and accurate records makes the process much less intimidating and straightforward.
Financial Analysis and Decision Making
The capacity to make well-informed decisions to run a business requires analyzing financial information. The results of that financial analysis help owners develop plans of action.
Having an accountant to manage and review your profits, losses, liquidity, assets, and liabilities can help you to come up with the most efficient solutions. Whether developing new policies, choosing a new supplier, or making a new purchase for the office, accountants are crucial in understanding your financial health and helping you avoid common mistakes.
Need Accounting Help For Your Business? Give Us A Call
Regardless of how big or small a business is, most exist to generate a profit. Accounting is vital to doing just that and maintaining good financial standing.
At MI Tax CPA, we help small businesses, startups, and more with personalized business accounting services. Whether you need help with bookkeeping, business tax filing, or establishing your business entity type, we can help! Learn more about us and call today to see how we can help you secure a solid financial future.