Long-term success in business is dependent on a diverse range of skills, the most prominent being strategic planning, prudent financial management, and visionary leadership. Let’s focus on financial management today. At the heart of financial management is business accounting. Through proper accounting and bookkeeping, businesses gain valuable insights into their financial health, which by extension helps them to manage their cash flow more effectively. There’s more. Business accounting brings long-term success in these, among other ways:
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Effective budgeting
Effective budgeting is essential for the success of any business. It is through proper budgeting that you are able to finance short-term business goals as you strategize for long-term business growth. A budget helps you plan and monitor expenditures so that you don’t overspend on unnecessary projects or overheads.
Accounting and bookkeeping provide you with a record of past finances, which is vital for making budget estimates. Without the record, you’d have to rely on gut feeling when making budget estimates. That method is error-prone, unsustainable, and ineffective.
Determining the liquidity of a business
You are likely to mismanage business finances when you lack a clear understanding of the liquidity of your business. Business liquidity refers to the liquid resources (mostly cash) at your disposal. The higher the liquidity of your business, the stronger it is in paying off financial commitments. This is to say that determining your business’s liquidity minimizes the risk of bankruptcy. You cannot determine the liquidity of your business without proper accounting.
Legal protection
Paying taxes keeps your business out of trouble with the law. Sidestepping employee remuneration and compensation laws attracts unwanted legal issues and can greatly harm your business’s reputation. Your accountants ensure that the business complies with all tax, financial, and other legal regulations. It is impossible for a business to comply with tax, employment, financial, and other legal requirements without accurate, well-maintained financial records.
With regular audits and internal controls, which are done by internal accountants, you are able to detect and thwart fraudulent activities early enough. Financial fraud in your business may lead to lawsuits and reputational damage. What’s more, proper accounting and bookkeeping provide you with all the ammunition your business needs in case of a financial-related legal dispute. You always have a record of financial transactions and operations which you can produce as evidence in a dispute.
Payroll management
Accounting and bookkeeping tell you how big a wage bill your business can afford, so you don’t waste money on a bloated workforce. Payroll management is something a small business owner (with just one or two employees) can do on his own. For 10 or more employees, you need an expert to ensure that everyone is paid on time and accurately. You also need a small business payment processing tool for effective tracking of each employee’s hours worked and keeping a record of the payroll. That way, you don’t overpay or underpay your subordinates.
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Financing
For your business to expand and grow, you might need financing from investors, the government, or a financial institution. These financiers will ask you for your business’s financial records in order to determine its financial health. They’ll also ask for your financial forecasts in order to determine whether your business is worth investing in or not. Your accounting department is the custodian of these financial records and forecasts.
Understanding your business’s financial position
Accounting and bookkeeping provide you with a comprehensive overview of business assets, liabilities, revenue, and expenses. It tells you how healthy your business is financially. This is important for many reasons. For starters, it helps you make informed financial decisions when strategizing for business growth. Secondly, it helps you avoid costly financial decisions when making future investments. Thirdly, this helps you align long-term business strategies with your overall financial objectives. All these benefits provide a strong foundation for successful business operations.
Better business control
Accounting places checks and internal controls across all your financial transactions. It tracks and records cash flow data and profit margins. These checks and controls help you identify loopholes that could precipitate losses, e.g. theft, corruption, fraud, and mismanagement. Accounting also helps you forecast future financial performance, helping you plan better for long-term success.
Final word
This goes without saying: Proper accounting is a vital component of both short-term and long-term business success. It helps you make seal financial loopholes, manage resources more prudently, evaluate business performance, identify risks and opportunities, and make informed decisions. Furthermore, accounting safeguards your business from legal disputes and reputational damage. This is why you must prioritize accounting and bookkeeping.
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