For a business to run efficiently, it is vital to have a record of all financial statements. The three financial statements generated by the accounting department include the income statement, the balance sheet, and the cash flow statement. Each of these has its significance. Keeping the financial records up to date and maintaining all three of these financial statements is critical for business growth.
Small business owners sometimes make the mistake of ignoring the recording of financial statements promptly. Accountants in small businesses often rush to create accounting statements only when filing the taxes or an external audit is near. Rushing can raise the risk of errors and lead to the potential loss of critical financial data.
Accounting is the systemic recording of all business transactions, including the income and expenditure such as payroll, taxes, client and vendor payments, and office expenses. The accounting department also ensures that the business complies with the government laws and provides the necessary financial paperwork to upper management, investors, and government officials.
An accountant’s job may only be restricted to bookkeeping or data recording and report generation for the small-sized business. However, for medium and large-sized businesses, the role of accountants and the finance department evolves as it involves financial analysis, expense management, and presentation of the company’s financial data to potential investors and the company management.
Having an efficient accounting department or at least a committed and efficient accountant for your small business is necessary. Here are five reasons your small business needs an accountant.
Finance Data Recording and Management
The primary function of an accountant in a small business is recording and managing crucial financial data. The accountant is responsible for maintaining records for all financial transactions and keeping receipts, invoices, and payment documents organized.
The accountants must prepare monthly, quarterly, and yearly financial statements to help business owners study the trends. This data management is easy, especially when you are looking for someone to invest in your business.
As the company size grows more prominent, a typical accountant’s job evolves from bookkeeping to payroll and tax management. Proper financial management ensures a balanced cash flow and timely payments to vendors.
Finance Analysis and Projections
At a more senior level, accountants are required to study the financial statements, analyze and make projections to business owners and potential investors.
These projections are made by studying the monthly, quarterly, and yearly financial reports to observe sales and revenue trends and identify areas of weakness and strength. Qualified accountants calculate and project a business’s growth by thoroughly reviewing the financial records, thereby helping the company owners make learned decisions.
Law Abidance and Regulatory Compliance
The finance department, chiefly the accountant, is also responsible for ensuring that the business abides by the law and complies with all the IRS and state regulations. From tax preparation to budgeting, the accountant is responsible for doing all of this within time to avoid penalties.
Monitoring and supporting taxation issues and filings can also be a responsibility of an accountant. The accountant also usually coordinates the audit process by assisting with financial data preparation.
Communication with External Bodies on Matters of Finance
Businesses often operate on credit and have multiple vendors with payments overdue. The finance department is liable to communicate with all these external bodies, vendors, tax lawyers, or potential investors. Accountants provide the prerequisite data and make sure that payments from vendors are made in time.
Budgeting
One of the critical functions of an accountant is to help formulate an appropriate budget for the company. The accountant, based on business projections, allocates a fixed budget to various departments of the company. The budget is usually annual; however, small businesses tend to break the annual budget into different categories of quarterly budget, monthly budget, and bimonthly budget.
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