Accounting: Your Business's Financial GPS to Success
"Accounting is the language of business" - Warren Buffet
Accounting is vital to managing and steering a business in the right direction. Without a proper accounting system, how would you know if your business is making a profit or loss? Investors, bankers, and other lenders would have no way of gauging the financial health and status of the business without business accounting. This makes financial accounting reports critical to informed decision making.
Lenders, Investors and Stakeholders
Access to capital is vital to the start and continued growth of a business. People and entities who put their money into a business will only do so if they have the confidence that their return on investment will be high as lenders need reassurance that the company will be capable of repaying the amount that is lent. Hence, lenders usually require you to submit audited copies of the business’ financials for credit analysis – some of which are the Income Statement, Balance Sheet, Cash Flow Statement and Business Tax Returns.
Just like lenders, investors and stakeholders require precise and accurate financial information to base their decisions on. Startups need investors to put together enough capital to get their business off the ground and to attract investors, you need more than just an idea. Investors always appreciate a sound business plan and financial projections. This gives them assurance that you have a plan for the company and a measure of if it is financially healthy.
Moreover, an existing company may need additional investments to expand and grow. Investors study the income and cash flow in the company to determine if it is financially healthy. Accurate financial reporting is essential for investors to assess the risk and benefits of investing in the business.
Accountants
An accountant is often called upon when financial decisions such as buying more equipment or taking on more human resources are considered. They can only give sound advice and make decisions based on the financial reports of the company. These reports tell the accountant the current capability of the business to spend.
If the company does not have the cash on hand, the accountant would have to advise the business to take a loan in order to make the addition of equipment or people. Without these accounting tools, business decision making would be much more challenging and inaccurate.
Business Owners
Business owners get a clear picture of how their business is faring through accounting reports. Important decisions such as how much to budget for the time period, whether to expand the business, acquire more equipment or manpower, or downsize are made based on the past and present financial status of the company.
The balance sheet and the profit and loss statement give a larger overview of the company’s finances. Accounts receivable (how much money is owed to the company) and accounts payable (how much the company owes to others) are also of interest to the business owner.
Most importantly, a business owner or manager cannot make well-informed decisions unless they have access to real-time accurate data about the finances of the company.
Accounting plays a crucial role in the success and growth of a business. It serves as the language of business, providing vital financial information to stakeholders, investors, lenders, and business owners. Accurate accounting enables informed decision-making, helps attract investments, and allows for effective financial management. Without a proper accounting system, businesses would lack the ability to assess profitability, make sound financial decisions, and provide the necessary transparency for stakeholders. Ultimately, accounting serves as the foundation for the financial health and sustainability of a business.
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