Do you have or want to have a business? You need to understand the importance of accounting and how it can affect your company. Read on to learn more.
Charge Clients and Customers
Without a good accounting system, it can be hard to charge your clients and customers for your product or service. Many good accounting programs let you send invoices, and you can even schedule them or put them on repeat. That way, you can make sure you won't forget to bill a particular customer or client. If you sell products, you won't always use invoices, but having the option can help you keep track of that revenue. You or your accounting team can use accounting software to manage all of your various invoices. It may not seem hard at first, but it will become even more important as your business grows.
Compare Revenue Streams
As your clients and customers pay you, you can use your accounting system to compare revenue streams. Perhaps you offer multiple products, and one is bringing in most of your revenue. You can use that knowledge to focus more on promoting that product, or you can create similar offers. Or if one of your products isn't selling, you can determine if you should alter it to improve sales or get rid of it completely. You can also use your accounting records to help diversify your revenue streams. Even if you have one successful product, you don't want to rely on it alone. Accounting can tell you a lot about your revenue and finances.
Almost every business will have some sort of expense. You may need to pay for a website host or a vendor for a physical product. If you offer a service, you may need a physical location to meet clients and provide that service. Most businesses will also need to pay for office supplies, computers, and employee payroll. Accounting helps you manage all of your expenses. Then, you can see if you can reduce your expenses or if they're reasonable. You can also compare your expenses to your revenue to make sure your business is making a profit.
Set Financial Goals
If you want your business to grow, you should set some financial goals. Accounting lets you keep track of your progress toward your goals throughout the month or year. If you understand YTD meaning, for example, you can easily track your annual revenue or other financial goals. You can set goals such as overall revenue or the number of products sold. The more specific you can make the goals, the easier they will be to track.
Wherever you go over your financial statements, you can see how you're coming on those goals. If you aren't on track, you can adjust so that you can meet or exceed your goals.
Plan for Taxes
Every business needs to pay taxes. Another great reason for accounting is that it can help you estimate how much you'll need to pay in taxes. If you're a sole proprietor without employees, you can use a tool to estimate how much you have to pay each quarter. And if you have employees, you can also use an accounting tool to help estimate. That way, you can pay a bit of money every few months.
When you file your business taxes at the end of the year, you won't have as big of a tax bill. And if you overestimate your revenue, you may even get some money back in taxes.
Get Loans or Investments
If you want to get a bigger office or hire a large team, you may need to get a loan or an outside investment. When that happens, you typically need to show proof of your business financials. If you haven't focused on accounting, your records may not be accurate or have everything you need on them. That can make it harder to get the loan or investment money you need. Not every business will need a loan or investment. But you don't always know what can happen in the future, so prepare now before it becomes a major headache. Owning a business involves a lot of things. If you aren't a financial person, it can be easy to forget about accounting, but managing your books can make your life and business much easier.