Accounting is an important business function that allows businesses to review the efficiency of their operations. Accurate financial information helps business owners make proper business decisions and improve the profitability of the company.
Though accounting provides a clear picture of their business success, many small business owners overlook the importance of financial accounting. They fear to take up the endless stacks of financial documents.
Many small businesses use a simple method for maintaining accounting information called as ‘cash basis accounting’ – recording transactions when money changes hands. As the company starts growing and expanding, this method may not work. They need to change to other accounting methods that record all the transactions regardless of cash transactions.
Need Expert Insight
Every small business owner may not be able to do accounting on their own. Preparing copious amounts of financial records is not every ones cup of tea, especially when they have to focus on their core business activity.
They need help of certified public accountants (CPA) or accounting service firms that provide professional accounting services. They help small businesses in creating accounting systems and filing business tax returns. Some also provide other services like book keeping service, payroll processing service, incorporation services, tax planning and IRS audit representation.
Recording Transactions and Creating Budget
Recording transactions is one of the major parts of financial accounting. Every business activity is recorded in the company’s ledger. This function of accounting is also known as bookkeeping.
Budgeting is one of the important accounting functions that help business owners outline their expenditures. Sticking to their budget helps businesses avoid wasting money on various aspects of business expenditure such as hiring employees, advertising strategies, purchases, etc.
Determining Profitability
The success of a business depends on the profitability, not on its sales. Accounting is the predominant way a small business determines its profitability. Accounting helps small business owners understand how well they are using their assets to generate profits.
Communicating information – External and Internal
Financial accounting services also help a small business owner communicate their financial information with external parties. External parties such as banks, vendors, investors and leasing companies require small businesses to release their financial statements to assess and get an idea of how the company is performing. Financial records are very important for legal and tax purposes also.
Financial accounting information can help small businesses to share their strengths and weaknesses with the employees. They can encourage employee productivity using profit-sharing and stock-based compensation agreements.
When looking for accounting service, you could hire one in your office or you can outsource your accounting services to someone else. For smaller businesses, it is always better to outsource to a professional accountant as this approach will reduce your expenses a lot – you can save on hiring process, buying expensive office equipment, extra electricity costs, etc.
When choosing an accounting service, make sure that they are professional and experienced as they have to support your business’ financial activities.