SMALL BUSINESS
Why do people start a business?
To make money to try and improve their lifestyle, to run social enterprises and help others, to follow a dream or passion, to develop new and different skills.
Whichever one of these options you may choose, you will still need to manage your money and this blog gives a pig picture view on the importance of accounting in business management.
If you do not breakeven or make enough money to keep running your business, you will not stay in business. This is true even if you run a not-for-profit business.
Your strength may be in mechanics or engineering, or nursing, design, or computer coding, but you will still need to give some healthy respect to the financial affairs of your business.
Accounting as we know it has been around for about ten centuries. People have been counting and using numeric records for much longer.
Accounting is used to record all business transactions. It can then be used to obtain information on how the business is performing.
Having accurate financial information helps business owners make better decisions.
There are legal and regulatory obligations that a business must meet. These relate to taxation, registrations and certifications and licences.
Accounting is a necessary part of running a small business. It’s a task you will either need to grasp or outsource — or both.
At its simplest, accounting involves the basic processing of transactions. It is a process of gathering and reporting financial information and meeting any compliance requirements.
In contrast, accounting is used in complex business reporting structures, consolidations of several entities across borders, risk measurement, asset valuation, deferred tax calculations, statistics and big data management.
Accounting vs. Bookkeeping
These two might sound the same if you’re new to business finance, but they’re very different.
To keep it simple, bookkeeping is a day to day operations role, while accounting is more strategic.
Bookkeepers record and organise financial data for a business.
Accountants analyse and advise business leaders about what to do with that data. They offer insights on taxes, legal concerns, and growth. They prepare reports and audits to communicate and present financial data. These insights help businesses prepare for unexpected shifts that happen as a business grows.
So, an accountant can be a bookkeeper, but not all bookkeepers are accountants.
A blog on basic bookkeeping will follow.
Basic business accounting: What you need to know
If you start a small business on your own, the following tasks will need attending to:
setting up a business structure, opening a bank account, tracking income, expenses, assets, liabilities, and equity, preparing financial reports, developing a system for bookkeeping, creating a payroll system if you have any employees, figuring out tax regulations and payments.
Accountants and bookkeepers are continually assisting their clients in the use of their accounting software, or training in various aspects of changes in legislation impacting day to day operations. EDGE SME only use Xero accounting software. We assist small business with data file checks, accounting software file setups – for new clients, or for clients who have more than one entity.
The Profit and Loss, Balance Sheet and Cash flow reports are the most basic and popular method of getting a snapshot of your business performance.
If you can at least read your basic financial reports, you will understand your business’s performance and financial health — as a result, you will have greater control of your company and financial decisions.
Most business owners consult an accountant before they start a business or very soon after.
When businesses are small, they might seek a bookkeeper to assist with the day-to-day operations and a tax accountant for income tax.
As a business grows to a medium size there will be more need to hire an in-house accountant.
Accountants collect new financial data, reviewing or updating past records, making sure the data is correct. Then, they use this data to create budgets, conduct data and systems analysis and produce financial documents, and other reports. They collate evidence for audits and other legal proceedings, computing taxes, checking on compliance with relevant laws, making sure tax payments are on time, forecasting and risk-assessment.
