When you think of accounting, you probably remember boring work that leaves you listless. This administrative duty also leaves you unavailable for the weekend break you’ve deserved for a long time.
Yeah, it helps you understand how your business has been performing. That’s really great if your business is making as much money as you want. Seeing lots of zero ironically motivates entrepreneurs. But is accounting of value to you when things turn South? In what ways does accounting in your small business actually affect your bottom line?
If you won’t be visiting a bank anytime soon to ask for a business loan why invest lots of resources to it? The World Bank/IFC Getting Credit Rank 2010 report does conclude that financial information is ranked as much as collateral, by banks, in considering businesses for loans. No other factors receive greater prominence. You make financial records to prove to relevant outsiders, like investors, that your business is the better idea out here. It’s easy to limit the business value of your financial records to this.
Preparing financial records to the benefit of outsiders is just one half of it. You are aware that when doing this you have to keep to the accepted norms of preparing financial statements. The other half is preparing them for internal use. It’s called managerial accounting. You get to determine how you’ll prepare them but the basics of what value you must draw from the information remains the same.
You’ll meet plenty of people who believe that we can now use data to replace all other methods of arriving at decisions. Remember how Cambridge Analytica used social media info to supposedly influence the Kenyan elections? Maybe in a few years even gut-feeling or intuition will be outdated. Your financial records are part of the data you must look into to make better decisions.
But you have to analyze them deeper than how much profit you made, how much you’re business is worth and whether you have enough working capital or not. You’ll find that every key business decision can be made from them. This is how accounting remains valuable to you and influences the earning potential of your business. You therefore have a responsibility to take time and sacrifice money to develop your accounting skills. You’ll find many instances where these lessons are free so don’t fret.
Pick any bit of the financial data you have going and you’ll conclude that it gives you both an internal and an external outlook. Internally, your goal should be to keep things efficient. A bunch of numbers can tell you whether you’re supply chain is optimized, you’re productive or how well you’re allocating your profit. From these, you’re decisions could be to negotiate better. You could boost productivity by buying new machines rather than employee more people. Decision-making is all up to you.
External outlook is really popular. But it’s not the only thing you must focus on. Anyway, good analysis of your financial records can tell you whether you’re pricing your products right. Heck, whether you’re even targeting the right market segment in the first place. It’s amazing how things can fall into place just by knowing who exactly is your customer.
Accounting is a support function (even if your business is accounting). It’s easy to see why any small business owner would relegate its importance. You’re obviously too busy doing the actual work. Also, nobody notices their importance until things go wrong.But they make the difference among all the businesses gunning to be first to the finishing line.