According to recent estimates, there are currently more than 1.2 million accountants in the United States alone. This represents one of the largest professions in the business world. While accounting is just one component of running a business, many business owners consider it to be the most important.
With the right set of accounting practices, entrepreneurs can make important decisions using objective data. Instead of simply doing what “seems” to be a good idea, they can have tangible numbers in hand that allow them to know if any given decision is quantitatively justifiable. Accounting involves more than simply preparing their taxes once per year. In fact, both accounting and reporting are ongoing processes that will require them to pay close attention to the numbers on a regular basis.
In this article, we will discuss how accounting can be used to give entrepreneurs a competitive advantage. We will also list a few of the changes that provide them with some immediate relief. Even if you are an aspiring entrepreneur and not ready to hire an in-house accountant full-time, you can outsource your accounting needs to a specialized expert or firm.
Advanced Accounting System Is Essential
If you are running a new startup that is strapped for cash, you are probably looking to cut costs anywhere you possibly can. Because of this, many new startups will put off hiring an in-house accountant until they’re further down the road. However, the benefits of hiring an accountant are almost always greater than the costs.
- Preparing your taxes, finding tax-deductible options, and managing payroll
- Quantifying the revenue and expense potential of each component of your business
- Helping you “close your books” at the end of the year and create the corresponding financial reports (Statement of Cash Flows, Income Statement, End of Year Balance Sheet, etc.)
- Creating future forecasts for the upcoming year
- Identifying any costs that are redundant and could be eliminated
- Managing inventory and creating a budget
An accountant can also help you establish a bank account and choose the appropriate business structure (LLC, Corporation, Partnership, etc.). They can further help you select, install, and manage the accounting software that is most appropriate for you. By integrating an advanced accounting system into your business, you will be much less likely to run into financial surprises that may cause your business to fail.
How can my startups integrate better accounting practices?
In order for your accounting system to be truly “integrated”, you will need to engage in accounting activities on a regular basis. As stated, both accounting and reporting are very active processes. For example, your balance sheet—which indicates your business’ assets, liabilities, and equity—is a living “snapshot” of your business that changes with each transaction. Regularly updating and checking this balance sheet will be very important.
The accounting system that makes sense for your business will depend on its current structure, needs, and overarching objectives. However, there are a few valuable integration strategies that can positively affect businesses of all kinds.
- Using QuickBooks: according to Intuit, QuickBooks is used by roughly 80% of small business owners and has more than 29 million active users. QuickBooks is accounting software that makes it easy for businesses to manage multiple different accounts and functions at once.
- Introduce Cloud Technology: cloud technology makes it easy for a business to access important financial information wherever you may be. If you are at a trade show, for example, you can quickly access financial reports that can help you negotiate profitable contracts. Additionally, using the cloud makes it easier to back up all financial information.
- Quantify as many components of your business as possible: while the value of something—such as your company’s name or logo (or general goodwill)—can be difficult to quantify, making an effort to do so can help promote a more objective decision-making process. This will be especially important for businesses that are interested in future mergers and acquisitions.
- Adjust your forecasts regularly: as the world around you continues to change, the values reflected on your balance sheet will naturally change in response. Instead of simply creating a forecast at the beginning of the year and hoping it is accurate, your business should be actively adjusting your estimation over time. Making frequent adjustments will help you clearly identify how your business is actually
- Identify key performance indicators: KPIs make it possible for your business to quantify your performance and set long-term objectives. For example, instead of simply striving to “improve”, it is better to have a specific goal, such as increasing lifetime customer value by 20%.
In other words, if your business hopes to improve its reporting and accounting practices, it will be crucial to pay attention to the details. By “zooming in” and using up to date data while making important decisions, your business will have a much easier time identifying the clearest path to success.
The benefits of improved accounting practices will almost always outweigh the initial costs. By making just a few small changes and adjustments to your business, you can unlock competitive advantage and make measurable progress.