Why Is Accounting Important for Small Businesses?

Why is accounting important for small businesses? The more important question is: why do you think it isn’t important? After all, your cash flow is the lifeblood of your business. We’ll cover the biggest reasons why you can’t afford to leave the bookkeeping for later and why you may want to have it handled by a professional accountancy.

Fail to Manage the Money, and Your Business Is Likely to Fail

Industry studies suggest that twenty percent of small businesses fail within a year. Fifty percent have closed their doors after five years. Furthermore, studies attribute roughly eighty percent of these failures to money problems, namely, cashflow. Nearly a third failed because they outright ran out of cash. For comparison, a fifth were out-competed, a quarter didn’t have the right team, and forty percent found there wasn’t a profitable long-term market. You can address some of these issues with better market research, but money management contributed to most of these issues. For example, if you don’t have enough cash on hand, you have to finance equipment purchases. That cuts into your future cashflow. If you don’t manage your expenses, you may over-spend and end up eating into your profit margin. Then you have less money to use for capital expenditures or hiring people you need to succeed. 

You Can’t Afford to Ignore the Accounting

Debt is an expensive tool. It costs money to borrow money, and it is always more expensive to finance a purchase than to save up and pay cash. If you don’t pay attention to your income versus your expenses, you may end up having to finance the difference with debt. That increases the breakeven point for your business and reduces your profit margin. It is far better to set up good accounting systems so that you don’t go into debt needlessly.

Time Invested in Accounting Can Literally Pay Off

Carefully managing the money can save you money. For example, promptly following up with customers about payment will result in more money than if you sell off the late invoices to collectors. You’ll certainly save money if you stay on top of the bills rather than being forced to pay late fees. Hiring small business accountants like BrooksCity can help you avoid hefty fines because you didn’t stay on top of your tax bills.

In some cases, you can stem the losses, if you realize they’re slow to pay for their last order or service call. Then you can withhold services or future shipments until they’ve paid.

Depending on what industry you’re in, you may need a good accountant to remain in compliance with various government regulations. And you could be fined if you don’t generate the legally mandated reports or fail to follow certain procedures.

It Helps You If You Want to Attract Investors

Having detailed profit and loss statements and financial projections can help you attract investors. You’ll get points with investors if you can say that you have professional accountants managing the money, too. What should you do if you don’t want to sell an equity stake in your business to raise capital? Accountants can generate the financial reports that are necessary to qualify for business loans or government grants.

It Can Free You to Focus on Growing Your Business

Many small businesses fail to keep their books up to date because the business owner or management team has so many other things they need to do. And once you fall behind, the task can seem impossible. If you hire a good accountant, they can get your books in order and keep them in order. This reduces your stress. Furthermore, it frees you up to focus on the rest of your business. Whether this is changing your marketing strategy, hiring new employees or inventing the next product in your lineup, you’ll have more time to do the things only you can do.

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