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Why accounting is important in your small business?

Entrepreneurs who want to own and operate their own small business enjoy the challenge of creating products, services, meeting clients and customers, and promoting their business.  But one of the most important aspects of a business operation, and perhaps one of the most tedious, is the accounting function.  Sure, growth and increased revenues is vital for a business to continue operating successfully, but how do you track growth?  How do you know if increased revenues are not completely wiped out by increased expenses?  Proper accounting will provide the financial answers that a business owner needs to make the best decisions about the business.

You may ask, “Do I have to do this?”  The simple answer is no.  But, you do have to report your business income and expenses and pay taxes every year.  You could just keep expense receipts and deposit slips in a box and have someone sort out the mess when it is time to prepare your business taxes.  But having an accounting system makes this yearly process easier.

Keeping the pulse on your business operations

In the business world the old saying is, “cash is king.”  You, as a business owner, should always know if there is enough money in the bank to do business today, and whether there will be enough to do business tomorrow.  Your accounting operation is there to give you a snapshot of the current financial status at any given time. 

The best way to look at your financial “snapshot” is with a balance sheet.  The balance sheet will show you how much the business has in assets, liabilities, equity.  Always keep a close look at the balance sheet to see how much cash you have, and how much you need.  If your liabilities far outreach your assets, you could be in trouble.  You may need to make decisions whether or not to borrow money to keep your operation going.  Moreover, in a better world, if you have enough cash and assets, you can make additional capital purchases that can help improve your business.  The balance sheet can help with those important decisions.

Monitor your profitability

The profit and loss statement is also important to see if your business continues to be profitable.  This statement is usually prepared on a monthly or quarterly basis to show the profit or loss of a business for a period of time.  It is also important to have all financial transactions entered in the general ledgers to have accurate information.

Considering hiring professionals

You may also ask, “Do I have to do this all myself?”  As the owner you can perform all the accounting functions of entering daily transactions and creating financial reports, your business may demand all of your time, effort, and attention.  Small businesses can employ full or part time employees or contractors to perform all the accounting functions which frees up time for you. 

If you require a full time in-house accountant, be sure to find someone with experience in your business industry.  There are different accounting procedures for retail, service, manufacturing, construction, not-for-profit, etc.  An accountant can smoothly handle your type of business transactions can be the best resource for accounting information.  Also, an accountant can provide you with financial reports as a balance sheet or profit and loss statement when you need it.

If your business does not require full time accounting assistance, then hiring a part time individual or accounting service may be the most economical and simple way to keep track of your finances.

Manual versus computerized accounting

The other question to ask is whether your accounting should be done manually with actual ledger books, or if information should be entered and stored with a computer software.  The old and ancient method of doing “the books” manually has been conducted for hundreds of years; however, it can be very time consuming.  An economical software package like QuickBooks or Peachtree on your desktop or laptop computer will make the accounting process easy that can enable you to make important decisions faster.

If you’re in business, then you are in the business to make money.  Take a look at your financial process and evaluate the method of accounting that best fit your business needs.