Accounting for Businesses: Helping Your Small Business Succeed
Cash flow is the number one reason why small businesses fail. About 82% of businesses, to be exact. This makes tracking your business finances one of the most important things you could do when you start a business.
One of the best things you can do for your business is set up an accounting system as early on as possible. A robust financial plan will go a long way into helping you navigate the challenging aspects of running a business from the word go. There are many benefits of accounting for businesses, and we’ll discuss some of the most essential ones in this post.
You Can Establish a Baseline
One of the most significant reasons why bookkeeping for businesses is essential is to establish a baseline. It could be extremely hard for you to budget for your growing business and take it off the ground when your finances are not in order. Keeping records of your overhead will help you separate the income from the bills and expenses. It’ll help you set realistic goals for your business as you scale.
For Accounts Payable Management
When you start off a business, especially if you are working from home, a lot of things can get mixed up. This is even worse if you use your personal accounts for business matters as well. Receipts will get lost in all your paperwork, personal and business bills will be all mixed up, and it’ll be hard to know your actual income.
It may be hard for you to know when you pay your bills and where you pay all of them. You need a well-defined small business accounting because, without one, it’ll be easy for you to overlook payables and invoices. Additionally, if you have acquired loans and get behind on debts, you can damage your company’s reputation.
Financial mismanagement will also lead to numerous unnecessary penalties and late fees on various business transactions. It’s vital for any business to manage its account payables carefully to keep an eye on profit and loss statements as well as reconciliations. If not, your financial data can get you in trouble.
Account Receivable Management
Your business accounting structure controls both your income and outgoing expenses. You need to know when you bill your clients, when you send them invoices and who is responsible for following up on them. One of the top benefits of accounting for businesses is that all this information will be in order.
The thing about businesses is that clients don’t usually pay using the same billing structure. Some clients will pay in full upfront, others will pay bi-weekly, while some may pay on a monthly basis. Whenever you get large projects, you may have to send the various invoices throughout various stages of the project.
The more complicated the billing structure becomes, the more important it will be for you to manage the accounts receivables. It can be quite easy to lose track of how much clients have paid and how much they owe unless you keep accurate records. Even worse than this is that if you don’t stay on top of your accounts, you could face serious cash-flow problems.
If you don’t hold your client accountable for paying their invoices or bills on time, it could lead to a pattern of late or even missed payments in the future. Having a strong small business accounting system, on the other hand, will ensure proper management and a strong cash flow for your business.
For Financial Analysis
One of the most important benefits of accounting for businesses is financial analysis. Once you establish an efficient bookkeeping process, you will have an accurate representation of the financial health of a business. Your accounting cycle will end with closing entries every month, every quarter, or every year depending on how you set it up.
As a small business or a startup business, it’s recommended to have closing entries at least each quarter. During this time, you will create income statements, cash flow statements, then update your balance sheets.
With all these reports, you will be in a position to know how well your business is doing financially. Sometimes, even when a business is seemingly busy with customers, it’s still hard to know whether it’s being profitable without the right accounting system.
Small businesses need to establish bookkeeping KPIs, which are usually measured against the balance sheet. Without an updated balance sheet, it’s impossible for a business to know how well it’s doing. You can get small business help to analyze your financial statements and establish KPIs.
For Fraud Purposes
Fraud is currently a major problem for small business owners because they are usually the number one target for most hackers. Some of the best ways to reduce fraudulent activity is through data monitoring, audits, and analysis.
Essentially, this means that if you don’t implement a solid accounting process, you stand to increase the chances of small business fraud. While it may not completely eliminate the possibility of fraud, you’ll be able to detect it early before it gets out of hand. It’s also better to segregate accounting duties to avoid having one person responsible for every bookkeeping process.
For Tax Preparation
If there is one part of a business that most business owners struggle with, it’s tax preparation. You’d be surprised at the number of small businesses that don’t meet their tax obligations. Without the proper account management, tax implications can become a major headache and complication for you.
Looking at your sales and revenue without considering the tax implications means you will have problems during the tax season. Successful small businesses pay taxes, including payroll taxes and estimates filings on time to avoid audits and issues with the IRS. Now, taxes are not very easy to keep up with, so you may need professional tax services to get it done.
The last thing you want to be doing is compiling your statements and transactions a month before you need to file your taxes. Organizing a whole year’s worth of work is no easy feat, and you’re bound to lose track of it somewhere.
Accounting for Businesses: Why It’s So Important
Accounting for businesses is among the things that no small business should overlook. There is so much that goes into it, but you can easily keep up if you start early. You can choose to hire a bookkeeper, an accountant, or get an accounting system.
Either way, you need to get it done. That said, if you would like more informative posts about business products and services, please check out more of our website.
