Accounting and bookkeeping have been integral to society since trade began. However, before advancing into the current tech-driven accounting practices and software, there was manual bookkeeping and other forms of maintaining financial records.
Keeping track of a business’s internal operations is crucial to achieving efficiency and business growth. As a result, accounting and bookkeeping practices have always added value to the business sector. Here are nine reasons why accounting is the backbone of the business.
- The importance of accounting for tracking finances
Accounting is crucial to tracking the flow of funds for a business. Nowadays, the accounting field is driven by technological innovations, analytics, and data-driven insights. Maintaining accounting records is crucial to understanding profitability and is more accessible with accounting software. In addition, income statements, balance sheets, and cash flow statements are necessary to understand a company’s financial stability and health. As a result, these last couple of years has witnessed a rise in demand for accounting professionals like auditors, controllers, and forensic accountants. The U.S. Bureau of Labor Statistics projected a 7% growth in accounting careers by 2030. Specifically, forensic accountants are in demand due to their applicability in a wide range of industries. If you’re intrigued by the idea of leveraging accounting practices to investigate embezzlement, consider looking up forensic accounting salary, required skillset, and job opportunities. You may need to learn some job-specific skills even if you have a substantial accounting background.
Whether a business owner or corporate employee, reducing organizational costs while upscaling profits is crucial to every organization. Funds are scarce, and every organization wants to get the most done on a tight budget. While your idea as an entrepreneur may be stellar, without the help of your accounting department, it isn’t easy to conduct a cost-benefit analysis of an upcoming project or investment. Cost accountants specifically help businesses to take calculated risks while remaining within the margin of safety. Through accounting practices like budget control, value analysis, cost-benefit analysis, and overhead costing, accounts can help you manage funds. They know how to secure cost-saving deals with contractors and suppliers without jeopardizing business growth and quality.
- Forecasting cost and revenue
Besides recording business finances, accountants also ensure to forecast cost and revenue from the existing inventory of goods or resources that your organization relies on. Accounting is the only department constantly in contact with every other business department, from observing budgets for each department and helping with funding research and transactions. Forecasting also includes creating a detailed business plan or the master budget for every fiscal year. The master budget allows funds for investment opportunities and business projects.
- Cash flow management
Every business needs a steady cash flow. Cash flow management is for recording the inflow and outflow of cash from the business. A cash flow statement is a necessary financial record that helps detect a business’s cash position and cash shortages. One way the accounting department manages cash flow is by incentivizing debtors or delaying payments to keep cash within the business for long. Cash flow management is imperative for every business, regardless of its scale. It helps secure profitable deals and opportunities within the market and resolves debts by avoiding high-interest payments or late payment fees. Cash flow management also gives an overview of funds available for purchasing new assets for the business.
- Better financial analysis
Cash flow management is also necessary for making data-driven financial decisions for your business. When approaching new investors and stakeholders, the accounting department presents cash flow statements and other financial records to showcase your business growth and worth. An organized accounting system makes it easier for your business to secure high-return deals. Accounting data helps make better and informed decisions rather than gambling your way into investment opportunities.
- Business performance and goal-setting
A significant role of accountants is to set financial goals for the business and inspect the progress towards these goals by setting short- and long-term targets. Comparing these targets with budgets helps assess a business’s financial health and stability. Accounting practices like ratio analysis, financial statements, and costing are necessary for a detailed analysis. Detailed analysis helps set future goals and assess your company’s performance based on the data collected throughout the fiscal year. Not only does goal-setting help your business secure better deals and perform well, but it also boosts employee confidence and business productivity.
- Tax filing is easier
Filing taxes is the most dreading time for organizations and individuals without a financial background. While you may not necessarily need a tax accountant for your tax filing, your business needs one. Tax accountants make sure your accounting records are in line with the criterion of the government’s tax laws and prepared in time. As a result, it saves time when filing corporate taxes and helps manage business savings and finances well.
- Auditing becomes less daunting
Next to tax filing is auditing, which most businesses dread. However, with a well-functioning accounts department, all your bookkeeping data stays organized and ready for auditing. In such cases, you don’t have to work around the clock to provide financial statements or auditing proof. It also becomes more accessible for the auditor to review cash flow statements, balance sheets, and income statements and compare them. Therefore, auditing becomes less daunting, and you can avoid penalties or fines for not producing accurate financial information.
- Easy reporting to investors
The investor will likely ask for your financial statements when approaching an investment opportunity. Reviewing your business’ financial health helps them decide whether you can take up the investment opportunity and deliver results. A consistent and clean bookkeeping record makes it easier to negotiate investment decisions and successfully secure one. It is also easier to secure bank lending opportunities with a clear financial record.
Accounting has enabled businesses to grow and become efficient over time. Without bookkeeping, trade is not possible. Without proper cash flow management, you are likely to run a deficit or, even worse, declare bankruptcy. Whether you are a small business owner or the CEO of a large enterprise, getting your finances in line is the best way to proceed.