Having a business is not just one big decision – it’s a series of carefully examined small decisions that will form a solid business plan. From market research and costing to having your business registered and launch, it all involves key strategic calculations in building the foundation of your venture. These foundations will serve as a roadmap of how you will manage and grow your business.
There’s no one-size-fits-all when it comes to overseeing your business given there is an abundant resource of accounting tips available online. It doesn’t matter if you have the top-of-the-line accounting tools or the most promising accountant as your bookkeeper. What’s important is it suits your business needs.
While you are fully committed to running your business, it is also important to familiarize yourself with the basics of accounting. To successfully manage your business you have to at least equip yourself about the process of recording and analyzing financial transactions and how this knowledge will contribute to the success of your business. Here’s why.
Keeps your business organized
Managing your business is the complete opposite of being a regular employee. Although, indeed, you are also an employee of your own business; activities from your perspective are more complex. The success or failure of your business has a huge dependency on the decisions you will make and your ability to handle the challenges being an entrepreneur entails such as keeping your business organized.
Without the basic knowledge of accounting, you wouldn’t be able to track how much money you invested and how much your business had earned. You wouldn’t get to account how your current business profitability compared to the previous quarters. You wouldn’t have a controlled list of which customers owe you and which debts you need to pay – basic accounts receivable and accounts payable.
In a nutshell, accounting shows you exactly the financial position of your business. With all this accounting data, you can easily get a snapshot of how your business is doing. It keeps you organized so you’ll always have the pieces of information you need when making decisions.
Guides in budgeting
While having a business plan is essential in starting a business, having a strategy for how you will evaluate performance is fundamental to keep your business running. Nothing says more about your business than your financial records. Accounting reflects the results of operation as well as the financial performance of your business. It helps you understand not only the day-to-day transactions but also aid you to keep track of income and expenses – how much your business has grown and how much you can afford expansion.
These records will help you answer business plans such as: should you upgrade a machine in your office? is there anything you can cut costs on? , should you expand and open a new branch? Accounting will help you compare your current data with historical accounting records so you can allocate your budget appropriately so you can avoid business mistakes like overspending and mismanaging cash flow.
Formulates better future projections
Growing your business is a make-or-break process. There is no guarantee that the current position of your business will determine how it will be for the next couple of years. Business disruptions, competitions, and lack of profitability have the potential to slow down or even put your business to a halt.
Having a well-structured accounting record with a balance sheet, income statement, and cash-flow statement will play a crucial role when it comes to adapting changes and future projection. Either short-term or long-term projections, these reports can identify trends such as buying habits of customers, recurring business expenses, buying inventory, paying wages, and the amount paid for the tax to name a few.
You can use these reports to give a good view of how your business is doing financially. This could also help you conduct a risk analysis before jumping into big decisions. That way, you can assess if pursuing a decision could benefit or harm your business. With enough accounting knowledge, you’ll be more confident in your business’s future and better able to plan for its profitability.
Protects your business legally
Keeping your business compliant with the law is vital. While different states have different tax regulations, accounting protects your business from tax disputes that may arise in an audit and helps you ensure you meet all your tax obligations. With substantial financial records that may back up your tax claims, you can avoid the risk of paying settlements for tax penalties.
Proper accounting not only keeps your business compliant with the law, but you may also be able to prevent financial errors from payroll taxes, paying bills, and issuing invoices if you have sufficient knowledge of it. This knowledge should come in handy for you to be able to efficiently smooth out your business processes and keep you from wasting time and money.
Kat Sarmiento is a Molecular Biology Scientist turned Growth Marketing Scientist. During her free time, she loves to write articles that will bring delight, empower women, and spark the business mind. She loves to bake but unfortunately, baking doesn’t love her back. She has many things in her arsenal and writing is one of her passion projects. She can be reached on Twitter at @KatSarmiento007 or Instagram at @katweezyy