Why accounting is key for your small business
Helps you plan for growth
It’s essential to set goals. What should your profits look like one year from now? How about in five years?
Financial statements let you properly assess how quickly your business is developing. Without accurate financial statements, it can be tempting to fall back on easy metrics like “sales growth,” which don’t give you the full financial picture.
It’s essential for securing a loan
Up-to-date financial statements determine where your company stands. They’re important if you want to fund your business with a loan.
For example, if you were to apply for a loan through a bank you will need to provide, on average, three years of financial statements, plus a one-year cash flow projection. It’s practically impossible to deliver any of these if you don’t have an accounting system in place.
Accounting helps you get paid
When a customer owes you money, it appears as Accounts Receivable (AR) on your balance sheet. The balance sheet tells you how much of your AR you’ve already pocketed during the month, and how much is still outstanding.
By referring to your balance sheet, you can track how well you’re doing at collecting payments. Then you can put in place processes such as harder payment deadlines, or better follow-up with clients to verify you get your hands on the money you’ve earned.
Helps get investors or sell your business
Potential investors or buyers will expect accounting records that prove your business is profitable and on track for growth. These records should be provided by a CPA.
Keeps you out of trouble
Good accounting gives you complete, accurate financial records, which reduces your risk of breaking tax laws. When you have an accountant filing your taxes for you, you can be sure they’ll be done accurately and on time.