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- Some small business owners dread accounting, but what’s not to love about it?
Some small business owners dread accounting, but what’s not to love about it?
As a small business owner, tax and accounting is probably the last thing you want to think about. And yet, just like you know you have to do laundry even if you don’t want to, you can’t avoid accounting. You have to do it. Accounting is a big part of your business life. But it is not just a chore, not just about compliance. It can actually be pretty helpful.
Accounting helps you make important business decisions
Business owners all grapple at some point with pricing their goods and services. Understanding what your breakeven point is, the structure of your business’ expenses, fixed costs and variable costs are critical to making good, informed pricing decisions. Sure, there are other data points to consider, but a good understanding of accounting provides access to essential information.
Business owners can also use financial information to inform their investment decisions. For instance, many business owners and managers have to decide between leasing or buying a piece of equipment, a business car, computers, office space, or something else. The decision is often based on the effect on the business’ profitability and cash flow availability. Both can easily be derived from the books and records of the company. A CPA can also help in making this kind of decision.
Accounting helps you optimize your taxes
In other words, with the right tax strategies in place, you can save money on taxes you pay every year. Tax optimization strategies are legal, but you have to know the IRS code and the opportunities it offers. For instance, the timing of divestitures can be adjusted from one year to another to take advantage of net operating losses (NOLs) or to decrease short-term gains. In this instance again, consulting a tax & accounting professional is likely to help you save money. After all, who wants to pay more taxes than they have to?
Accounting helps you bridge the gap between your past and your future
Accounting is a language. It tells the story of your business and its financial health. While financial statements paint the picture of the past accounting period (the last year, for instance) and the transaction that occurred during that period, they can also help identify trends and help project cash flows and other key metrics. A CPA can also help you identify areas of improvement for your business. A good analysis of inventory ratios and other data can offer a trove of information on practices that work and practices that can be improved.
Accounting helps you tell your story
Whether you are trying to raise capital, need to convince a prospect of your financial stability, or want a new supplier to know that you are solvent, chances are you will need to have a good financial story at the ready. Accounting is the language that will enable to tell that story most convincingly. Are you at risk because you depend on a few large customers? Are you in need of capital because you are growing fast? Will you run out of liquidity in the near future unless you take action? Your accountant will know and so should you.
Accounting can keep you out of trouble
At least when it comes to tax & accounting compliance. Payroll is complex and it changes often. Tax laws are complex and they change often. Yet, you need to get payroll, taxes, and other financial compliance tasks right. Accounting is where you start, and a trusted advisor can help you stay out of trouble.
To sum it up, accounting can help you make smart financial decisions, can help you save money, will support the growth of your business and will assist you plan for the future, all the while keeping you compliant. So what’s not to love?
Last Updated: 5/7/2020
Thomson Reuters Labs
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