In business, accountants traditionally have one of the most valuable skills. Whether you are starting small and local, a startup that is trending one way, or a company with a significant market share, accounting is how you maintain stability and clarity of operations. Without this, an enterprise can quickly dissolve into disarray, even if the promise of future growth is available.
Why are accounting skills so important for all businesses? Let’s discuss the top reasons accounting involves more than just 'number crunching' and serves as a tool to make better decisions for long-term sustenance and survival.
Accounting, at its most basic, shows us the financial position of a business. It measures and monitors the receipts into the business and the disbursements out of the business on a perpetual basis, and for what purposes. With a set of accounting records that seem to contain some legitimacy, it becomes difficult to visualise anything other than a continuum from profiting or hustling to not losing your business, because what does it mean, if you're making any money, then that is still to be determined.
Just imagine for a moment driving a vehicle without a fuel gauge or a speedometer. You would have no idea of your speed, how much fuel you have left in the tank or even if your engine was overheating. Navigating a business continuum for your knowledge without any accounting would place you in a similar situation; you are likely moving, but you are moving where you cannot meaningfully see (with any level of surety) the financial operation performance of your business.
Every business owner, manager, or entrepreneur faces difficult choices daily. Should I hire new people? Can I afford a new product? Should I expand the business into different markets?
Accounting gives you the impartial information you need to answer these questions. It provides reports (like income statements, balance sheets, and cash flow reports) that specify costs and revenues, and you discover your profit margins. With accounting, you can make decisions based on what you see, instead of relying on intuition or hunches.
Compliance with taxes and regulations is an experience every business goes through. Governments expect every business to file tax returns, present financial statements, and keep accurate records. One mistake can expose a business to a significant penalty and possible legal implications.
Similar to accounting competencies, will establish that obligations to file taxes, prepare, record, and abide by related laws are accurate, timely, and in order by the legislation, regulations and rules. Accounting competencies will assist businesses to comply with their obligations, make payments and avoid penalties on time while maintaining relationships with tax agencies, investors and customers.
Often, businesses fail not due to not making a profit but instead failing to manage cash flows and running out of cash. A business can be profitable on paper. But if a business is not properly controlling its cash flows, a business may find it cannot pay suppliers, employees, or make its rent payment.
It is critical that a business knows where its cash is flowing, and accounting can help a business monitor and control cash flows to ensure there is cash available to pay bills each day. Developing budgeting, cash forecasting and bank reconciliation skills is important because they are fundamental business activities meant to mitigate the impact of a sudden financial crisis on a business operation.
If your business ever pursues outside funding, via any means (loans, investors, or venture capital), your accounting records are imperative. Banks or investors want to see your financial statements so they can assess the performance of the business, the overall financial condition of the business and ultimately, be able to evaluate its ability to grow moving forward.
A business cannot effectively establish its credibility or position in the market without accounting records. In many instances, the existence of formal financial records could mean the difference in whether the business acquires needed funding.
Accounting provides not only a list of previous business expenses but also ways of planning for future business as well. Trends in accounting will show patterns or trends in finances that will show opportunities or risks.
For example:
If you understand these trends through accounting, you can change your business practices from reactive to active ones using the data from accounting.
Accounting can be technical, perhaps even overwhelming. But it is without a doubt one of the greatest skills anyone in business can possess. It is the foundation for legally, profitably and strategically running a business.
It does not matter what size or types of business you are running; having strong accounting skills will help you with uncertainty, you will be able to take advantage of opportunities, and most importantly, you will never leave your business stagnant; your business will thrive and not merely survive.
If you are in business, it is your partner in business to know accounting. At the end of the day, it comes down to this: accounting is more than just the numbers. Accounting helps you know your business inside and out so you can confidently take it one step further to your success and prosperity.
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