In order to run a successful and profitable business, entrepreneurs need to have an understanding of their business finances. Taking accounting seriously from the beginning is often the difference between a business being successful and having to file for bankruptcy.
It may seem daunting to pay attention to tax structure, to the good management of bookkeeping, to maximising cashflow, to finding out what you can deduct from taxes, among other things.
If done correctly, accounting is critical to help small businesses succeed by providing insights into the overall financial health of the business, offering a precise report of cash flow, demonstrating opportunities for growth and keeping the entrepreneur organised and accurate when filing taxes.
Here are some reasons why entrepreneurs benefit from accounting.
Successful businesses rely on competent accounting
Business is based on the movement of money, and accounting is the language of that movement.
The success of a business depends on the planning and tight management of budgets, balancing the books, and revising financial strategies when necessary. Therefore, a company's success depends largely on sound accounting.
Entrepreneurs must understand all aspects of business
Entrepreneurs wear many hats.
They must understand the financial ins and outs of every aspect of their company's business dealings because, at least in the early stages, entrepreneurs are responsible for all the different functions in the business.
Accounting is a part of every aspect of business management, from large business loans to small business grants, product manufacturing and distribution costs, to marketing campaign budgets.
When a business grows to the point where an entrepreneur can delegate responsibilities to various specialised managers and employees, a depth of understanding of how each department functions financially is necessary for evaluating its performance.
Accounting is key for budgeting and planning for profitability
Accounting can help entrepreneurs create and manage detailed budgets for their businesses. Understanding how much money is coming into and going out of the business, you’re better equipped to plan for expenses. It is critical to know how much money is left after expenses have been paid, in order to plan for profitability.
Accounting information is essential for investment
Entrepreneurs may need to provide banks, lenders and investors with a financial forecast relating to a business venture. Accounting information is heavily relied on by lenders and investors to ensure the entrepreneur has an accurate and reliable picture of financial expectations.
Proper accounting makes tax season a breeze
Accounting helps entrepreneurs prepare for tax season and eases the headache of filing income taxes. With proper accounting and bookkeeping, you’ll have all the records of your business’s earnings and expenses filed away, which will make filing your income tax quicker and easier.
Use accounting to measure business progress
Without any measurement of revenue, entrepreneurs don’t have any understanding about the business’s progress. With proper accounting, entrepreneurs will have all relevant financial records such as credits, debits, profit and loss. This gives you a better idea of your business in numbers.
This will help you make more effective commitments of time, energy and money to attract customers and deliver goods and services at a larger and more efficient scale.
In addition, by accurately measuring results tied to employee effort, you can reward the top performers in your team. Furthermore, your employees will know they are held accountable so they will be more productive and perform better.
Accounting is critical to communicate about money
Solid communication skills are essential to nearly every aspect of running a business, but they’re particularly important when dealing with finance and accounting.
As an entrepreneur, you must be comfortable and able to clearly discuss the hard numbers of your business—with employees, vendors, and investors or other stakeholders.
Accounting is a tool for growth
Entrepreneurs are builders, always looking forward and creating something, taking appropriate risks, and finding brand new value that can be priced to address specific solutions.
Beyond being necessary for a company's immediate financial health, accounting practices are important strategic tools for entrepreneurs. They allow small business managers to make future projections and predictions in real time.
Moreover, a competency in accounting allows entrepreneurs to evaluate company performance and judge which aspects work well and are worth investment as well as which functions need improvement or are simply unnecessary or unprofitable.
Note: As your business grows, you should seek out the services of a trained accountant, who can guide the company on a path toward financial success. Even if you have an accountant, you should understand enough about the subject to have meaningful conversations with potential partners, investors, employees, and others.
