The Importance of Accounting for Small Businesses 2

The Importance of Accounting for Small Businesses 2

How should I track these metrics?

Though it’s quite common for small business owners to have a spouse or family friend “do the books,” effectively managing your small business’s finances goes beyond bookkeeping. Properly strategizing for your company’s future, as well as meeting your legal requirements, is best achieved with professional accounting methods. This is particularly true if you’re too busy or too uninterested in the nitty-gritty details to analyze the numbers. At this stage, successful small businesses consider either outsourcing their accounting needs or investing in accounting software. Each option has its pros and cons.

For many startup companies, funds are tight and it may be tempting to pursue the cheapest method. Because your legal requirements are only due once per year, you may choose to ignore it all until tax time every spring. Remember, if you choose this option, you’re essentially opting out of receiving crucial data that can encourage success. The short-term solution may not be the best one, and it pays to do your due diligence when making this critical decision.

Accounting Software

Tech-savvy business owners or those familiar with accounting principles may be drawn to accounting software. From a time management standpoint, digital bookkeeping is a vast improvement over manual calculations. These applications automatically crunch numbers, perform data entry, track performance metrics and produce business reports. Once your data is entered into an application correctly, the accuracy of the software’s calculations is virtually guaranteed; this can be a comfort in the event of IRS scrutiny.

More advanced versions integrate with other office management programs, display data trends, pay accounts receivables, remit invoices or ensure that you’re meeting tax requirements. Extensive data storage within an application like this also increases your company’s efficiency, allowing access to details like payment history with a few keystrokes.

Hiring an Accountant

In some cases, small business owners may be more comfortable hiring a sole practitioner or accounting services firm, perhaps one that specializes in small businesses. Other businesses may hire temporary accounting staff at certain times during the year, or hire part-time bookkeeping staff with advanced training. In each of these cases, business owners transfer the company’s financial management to another individual. For a business owner who lacks accounting skills or detests crunching numbers, outsourcing the company’s financials can be an attractive choice.

Many business owners find an accountant’s expertise and tax knowledge to be the biggest draw towards outsourcing. A qualified accountant can assist in numerous ways outside of managing day-to-day finances. For example:

  • Advising on how best to structure a company before it’s formed
  • Consulting on the financial details of your business plan
  • Identifying potential cost savings in operations
  • Managing payroll
  • Developing a financial safety net in case of catastrophic events or struggling growth
  • Liaising with the IRS in the event of an audit

Though many small businesses start out with the owner as the sole employee, there comes a point during their growth when it’s wisest to hand over accounting functions to a professional. In this situation, businesses may choose to hire an inside accountant or an outside accountant in an accounting firm. For younger, growing businesses, using an accounting firm offers some flexibility. Keeping a firm on retainer for consultation can be particularly useful for the business that only needs their expertise a few times per year, for example. This is a cheaper option that still delivers high-level knowledge. Accounting firms generally charge by the hour, though some analytic functions will be priced higher than others. If you’re unsure, weigh the cost against what such a firm can save your company over time.

What’s Next?

It’s no secret that small business owners have a lot to do. As we’ve explored here, the financial implications of business ownership are extensive, yet critical to a company’s success. Having a dependable, efficient accounting system can free up your time to focus on the things you love about your business. As you explore accounting solutions for your company, consider the following questions:

  • What is the size of my company? Small businesses generally have fewer than 20 employees.
  • What technology is available to me and my employees?
  • Is my understanding of basic accounting up to the task?
  • Does my cash flow allow for accounting expenditures on a monthly or annual basis?
  • How comfortable am I handing over sensitive business data to an individual or accounting service?
  • Is daily data entry something that I or one of my staff can reasonably accomplish?
  • Does my company operate in a complex tax environment that may be subject to audit?
  • Do my competitors in the industry find a particular method to be most useful?
  • Are there compatibility factors to consider with other technological processes that regularly occur, like payroll?

The answers you determine will help you decide which options make the most sense for you and your business. Then, you can get back to doing what you love with confidence in your financial future.

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