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Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.

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Why Accounting Is So Important For Your Business

 

Accounting is vital to the success of any business. It is often overlooked in the early stages of a company’s life, but it’s important to set a precedent with a strong financial foundation. This will help you keep everything organized, while freeing up time to focus on important activities. Though you can probably get away with doing your own bookkeeping in the beginning, it’s important to work with a professional, like Wiss & Company, as your company evolves.

Accounting allows businesses to take raw numbers and translate them into a comprehensive account of profitability and performance. Accounting is a universal language, so there are general principles to which to adhere, which can be understood by anyone with a financial background. The evolving role of the accountant involves communicating financial information to non-financial people, as well.

Follow the Money

Businesses depend on accounting to track the flow of money, just like with an agents/broker portal. When you make a sale, this is logged in your accounts. If a sale is initiated on credit, the accounts will make note of when the cash is coming in. Your accounts will also track payroll and company purchases. There are two basic statements in accounting: the income statement and cash-flow. It’s important to distinguish between the two, because if a business has significant credit sales, it might have a shortage of cash.

Analyze Performance

Accounting is useful for detecting problems. You can easily monitor how well your company is performing, as well as a number of other aspects of business. Numbers can be deceiving when viewed in an isolated fashion, but with a deeper understanding of accounting, you’ll have a clear picture of what’s going on. For example, if your sales revenue is up, but manufacturing costs are up more, the reality won’t be as positive as it appears. Since companies are required to be transparent with their accounts, you can compare your financial position with other companies. You can measure profitability and the rate of return. The correct accounting metrics will outline the true earning potential of your company.


Decision Making

Managers use the information obtained from accounting to make informed decisions. They are equipped to make these decisions by addressing the following financial questions:

  • Is the company able to pay debts?

  • How efficient is the company?

  • What is the projected cash flow over the next period?

  • How much can the company invest in expansion?

By utilizing relevant accounting information, you can make logical judgment calls that improve the efficiency of your business operations.


Legality

Good accounting practice that aligns with all the lawful regulations will help you avoid legal trouble. Tax considerations are important for large corporations, and incredibly complex. By engaging in proper accounting practices, you can steer clear of problems with the IRS. Accountants are relied on to provide accurate accounts, because filing with inaccurate accounting can be a legal disaster.

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