xAnyone who runs a business, no matter how small, knows just how many different hats you need to wear. From advertising, marketing and promotion to product and material sourcing, storage and production, there is always something to be done. But it doesn’t end there. We haven’t mentioned accounts yet. With so much else to do, it’s no wonder lots of business owners don’t pay too much attention to running their accounts, but this can be a costly mistake.
You could gain an accounting qualification (even online) for a deep understanding, or just remind yourself why accounting matters when you’re in business.
Geared for Success
It’s always a bit of a risk, being in business, because solid markets today can quickly disappear if trends change. Sole traders and start-ups are among the most vulnerable. As they may not have extensive experience or reliable backups to weather unexpected adversity.
Good accounting can put your enterprise on more solid footing from the start. Some of the practical ways accounting can help you plan include:
- Better cash flow – you’ll quickly learn where bottlenecks are likely and can set up safeguards to help navigate them. Slow paying clients or worse, such as those that don’t pay at all, can have a serious impact on day-to-day business matters. Robbing you of funds to finance new projects for the future.
- Fraud detection – you may not have the problem of petty theft from staff members if you’re a sole trader, but banking fraud or theft is a common danger. When you’re regularly updating your accounts and balancing your books, you’ll be more likely to notice unauthorised activity in your bank account.
- Costing your projects – costing your projects involves balancing available funds with potential project costs. You can’t do that if you’re not sure about your finances, so you run the risk of undercutting yourself or having projects take longer than you thought.
- Better banking – a good relationship with your bank manager is an asset. When you can demonstrate deep understanding of your accounts, you’re in a much stronger position if the day comes when you want to borrow.
- Straightforward tax returns – businesses must, by law, be registered with HMRC in the UK, and submit annual accounting figures. It’s very much quicker and easier if you keep the books up to date throughout the year.
Your Crystal Ball
Above are some of the practical ways accounting keeps your business on track and profitable, but there are other ways it helps too. Such as helping you see the future and plan accordingly.
- Performance – reports drawn up from your set of accounts can inform you about how well the business is doing. Is it growing or not? And if not, why not? What needs to change? If you can see how things are looking now compared to how they looked last year or several years ago. You can quickly spot which areas need attention before a problem becomes critical.
- Decisions – you’ll make decisions in the business every day, from dealing with customers and clients to pricing or advertising and promotion. You’ll make better decisions in any of those areas when they’re backed up by a solid understanding of how your bank balance looks.
- Budgets – if you know there’s a lean time coming up because it’s the same every year, it makes sense to plan for it so it’s not a worry. Similarly, when you know you’ll be busy and need extra stock or staff to meet demand, it helps if you have the cash to get ready. With your accounts, you can foresee likely events and plan accordingly.
Hired Help or DIY?
For some, running the business is the exciting, motivating part. They prefer to outsource their bookkeeping, and that’s fine.
Bookkeepers will help as often or little as you need. Keeping everything up to date and ready for end of year reckoning. Accountants will do that end of year reckoning, ensure you’re not paying too much tax and claiming too little on expenses. They also submit your tax return on time.
For those who prefer a more hands-on approach, a course in accounting can ensure the books are kept properly. Even if you know the basics, a deeper understanding can give you an advantage when it comes to decision making. It’s never too late to start learning accounting.
A final alternative is to do the accounts yourself throughout the year, then hire an accountant for your end of year taxes.
Whichever way feels most natural is fine, as long as the job gets done. Empires are built on robust accounting, whether yours is a fledgling business or a growing, established enterprise.