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5 reasons why accounting is vital to business

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Businesses often see accounting as a grudge expense, something they have to do in order to stay on the right side of the taxman and to keep records of what is going on inside the business.

That’s fast becoming an antiquated view of accounting. Accountants are far more than record keepers, or financial historians.

In these difficult times, they are expected to be diviners of truth and fortune tellers. A good accountant is not shy to break uncomfortable truths to clients and let them know where they are going astray. Many business owners can get wrapped up in pet projects that drain money with no return visible anywhere on the horizon. The accountant is like a good doctor telling a patient that unless he quits drinking, his heart is going to pack up.

One uncomfortable truth about most businesses is they will always try to spend more money than they make (the same is true of most households). The accountant is there to stop this from happening.

Here’s why accounting is important to business:

  1. Record keeping: It tracks income and expenses and provides the business owners with a clear picture of profit trends. This is the traditional record keeping role of accounting, and it’s as vital today as it was 1,000 years ago. Armed with this information, business owners can make appropriate decisions, such as ramp up sales to increase revenue or cut down wastage to boost profits.
  2. Provides a snap shot of the business: The balance sheet gives business owners a snap shot of their financial position at an instant in time. The balance sheet provides details of revenue not yet collected and expenses not yet paid, as well as liabilities and assets – all vital to understanding the health of the business and its ability to continue operating into the future.
  3. Compliance: It ensures taxes are paid, compliances are met and the business stays on the right side of the law
  4. Business intelligence: the accountant is expected to drill down into gigabytes of data to tell the business owners which product lines are making the most profits, which are marginal and which are losing; where wastage has been detected and who’s not pulling their weight in the organisation. The first step in taking remedial action is to identify the exact nature of the problem. That information is pure gold in the hands of a diligent business owner. The accountant may need to delve in contracts and see whether the company is in danger of breaching any clauses. This may require expert legal opinion.
  5. Trusted advisor: the role of the accountant now extends well beyond that of mere record keeping. Given the advances made in technology and cloud computing, the accountant should be able to advise on technological solutions that will improve productivity and allow for more agile decision-making. Moving clients to the cloud has many advantages: data can be accessed from anywhere, anytime; cyber-security is enhanced; and return on investment has been shown repeatedly to make this is worthwhile investment.

Accountants are frequently under-selling themselves, often because they have failed to keep abreast of the huge leaps being made in the profession and the educational resources available to them. Fortunately, Saiba members have shown themselves to be at the vanguard of positive change in the profession. See here and here to see how accountants are reshaping the profession.