Being a small business owner isn’t easy. Most small business owners often find themselves understaffed and underfunded which means that in most cases they have to look at several departments of the business. With so many things going on, keeping track of it all can become quite difficult and when it comes to accounting such delays in record keeping can have devastating consequences for the business.
The Importance Of Accounting in Business
Accounting helps business owners keep track of assets, liabilities, income, and cash flow. This is extremely beneficial as it helps owners, managers, investors, and other stakeholders keep track of the financial performance of the business enabling them to make much more informed decisions.
Accounting is also essential for tax reporting agencies. Any small business owner in Canada is required by law to keep a record of all income and expenditure for tax purposes. Failing to comply with these Accounting standards can result in legal issues and heavy tax penalties.
Accounting is the language of business. Understanding accounting involves a logical way of thinking. After all, numbers don’t lie! In fact, they help paint the most accurate picture of the current state of any business. Using accounting principles and accounting standards such as the ones set by the IFRS and GAAP can help aid a business owner in achieving many of their business objectives.
What Does Small Business Accounting Entail?
Small business accounting is a lot simpler, in many ways, than big business accounting but also comes with its own unique set of challenges. As a business owner, maintaining accurate record-keeping can help serve different business purposes including:
The Recording Of Business Transactions
The primary and most important of all accounting objectives is to maintain an accurate and systematic record of all financial transactions taking place at the business on a day to day basis. Following a simple double-entry system or using a software platform such as Quickbooks can greatly aid in keeping track of all incoming revenue and outgoing expenses.
By having a systematic and organized approach business owners can easily pull up past records and review transactions whenever necessary.
Maintaining a set of accurate accounting records can also greatly assist in a wide range of decision-making processes for owners, managers, and other stakeholders. Accounting can help identify underlying problems with the business that can then be rectified accordingly in order to improve efficiency and profit margins. Without accounting, making informed business decisions would be near impossible.
The Benefits Of Accounting For Small Business Owners
Running a small business is no easy feat. A business owner has to deal with many challenges and issues, especially, during the early phase of the business. It is often during this early stage that most small business owners lose sight of the importance of maintaining the books.
Poor financial management is in fact, the most common reason for small businesses failing during their first year of operations. With limited budgets and resources small business owners can quickly lose sight of how much they are spending and how quickly they are doing so.
It is therefore vital that accounting is given prime importance during the early period of the business as it offers many benefits including:
Meeting Legal Regulations & Requirements
Canadian law mandates that all small businesses maintain accurate financial records of all business transactions. These financial records must then also be disclosed to shareholders, tax authorities and other regulatory boards. These financial statements are also essential for direct and indirect tax filing purposes.
Control & Accountability
By adhering to Generally Accepted Accounting Principles (GAAP), a business owner is able to instill routine accounting checks and controls that help identify anything out of the ordinary. This helps avoid losses caused by theft, mismanagement, human error, fraud, and obsolescence safeguarding business assets. Greater control also leads to better accountability as everything is transparent and easily traceable.
Accessing Business & Financial Performance
One of the greatest benefits of accounting for any business owner is the fact that these numbers when compiled into a financial statement help determine how well the business is actually performing. These financial reports identify and measure key performance indicators that help business owners form an understanding of how well or bad the business is doing compared to previous years.
Year-end or quarterly financial statements also reflect the financial condition of the business at any given time. How much cash do you have on hand? How much capital has been invested? What are your current liabilities? Is the business in profit or operating at a loss? All these questions can only be answered by adhering to small business bookkeeping practices.
Tracks Cash Flow
As a business owner you should always know how much cash you have on hand at any given time. This can help you make more informed business decisions based on the current cash standings.
Financial Statements Are Required To Raise Capital
Without proper accounting records and financial information getting a small business loan from a bank or any other credible financial institutions is impossible. Bankers and potential investors are much likely to invest or lend to the business if they feel that the business owner has a strong grasp of their business finances and understands various financial implications.
The Need For Accountants
If accounting isn’t one of your strong suits, as a business owner, hiring the services of one of the top accounting firms in Canada who have highly trained and professional Canadian Accounting Consultants is what you should seek to do.
Always remember the key to growing any business is to compile and review financial statements regularly, so as to discover potential operational inefficiencies and deviance’s within the business.
To save cost, it may be tempting for any small business owner to try and handle the business finances themselves. However, financial matters aren’t always straightforward and dealing with them often requires a trained professional. Skilled accountants can help business owners make smarter financial decisions and can also help ensure that the business adheres to all compliance requirements.