Accounting is a relatively dry aspect of running a business, and one which many burgeoning business leaders take for granted. It is naturally important to keep track of your small business’s finances, but the importance of accounting goes much deeper than simply tracking the state of your finances.
With small and growing businesses, it is also difficult to build a functioning and effective accounting team. External expansion opportunities trump internal consolidation when it comes to rapid growth, and new businesses will almost always seek the best shorter-term investments. As such, new businesses are ill-equipped to reap the benefits of a solid accounting system.
New businesses can outsource accounting tasks to a professional accountancy organisation, garnering expert analysis and ongoing data without the need to devote early profits to funding an internal department. But why should they do this? There are numerous benefits to be found in adopting a robust and thorough approach to financial control; what follows are four key benefits.
Assessing Performance
Of course, the most obvious benefit to understanding your SME’s finances well relates to the tracking of growth over time. On a base level, accounting enables the generation of a simple financial statement that demonstrates gross and net profits, as well as tracking the cost of overheads and investments over time.
Sales data can also be corroborated, giving you some clear indications of the successful aspects of your business – and the efficacy of new business stratagems in the process. It can also indicate to you any liabilities that could be starving your profits and progress.
Legal Compliance
The chief reason to devote more manpower to accounting for your business is legal in nature. There are various regulatory frameworks your business will need to kowtow to, some of which are specific to key industries. But universally, compliance is required with regard to taxation and declarations of value.
Accurate and comprehensive records of your finances need to be kept in order for your business to pay the correct amount of Corporation and Capital Gains Tax. You will also need to keep a close eye on payroll, to ensure you are paying your employees’ tax and National Insurance contributions correctly.
Detecting Issues
Beyond potential legal issues, accountancy can also help you identify other problems with your business and model. For example, incidences of theft or fraud might be uncovered by highlighting discrepancies in profit reports.
Internal issues, or increased incidences of consumer-side crime, can result in serious costs to the business. If uncovered early on the accounts side, your business can easier target and remove the liability – preserving growth in the process.
Managing Cash flow
Lastly, accounting can be more than just a diagnostic tool. It can also be used from a management perspective, to shore up short-term liquidity and shield your business from adverse market conditions. Cash flow is a vital indicator of business health and one which investors use to track the safety of their money. Accounting processes can enable you to better track cash flow and boost it when the economic situation worsens.
