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The Importance of Accounting for Small Businesses
The first thing an entrepreneur should remember is that even a small business is a business and every business requires accounting to track receipts and expenditure. The function of accounting does not, however, end there because the law, investors, and the management require well-maintained accounting entries for varied purposes. Not all small business has a budget for professional accountants, so the owner may just act as a bookkeeper and maintain records of the businesses daily financial transactions. here is an in-depth discussion as to why bookkeeping and accounting, in general, is essential for small business.
Accounting helps in the periodic evaluation of business performance. Financial records are a reflection of operations and the position of the business in terms of finances. In simpler terms, they aide the business owner to understand the direction of the business financially. Clean and updated records not only help track possible debt, expenditure, and the gross margin, but helps in the comparison of current data with previous records, which inform proper budget allocation.
There are a variety of laws and regulations, which depend on the state the business is located. With proper accounting systems, a small business owner is able to comply with these laws. It ensures that liabilities such as the various taxes are addressed in an appropriate manner. Also with proper bookkeeping, a business owner is able to take advantage of more tax deductions. When a business records and categorizes every transaction, it is easier to identify the expenses that are tax-deductible (Bench Accounting). Without proper accounting some tax deductive expenses especially one-off deductions.
Accounting helps secure a business loan. If a business approaches a bank for a small business loan, banks will want to see expenses and revenue for a certain period of time or what is called an income statement. Banks should be able to determine if they will be able to get their money back before they lend it out. So, by looking at the financial statements they can be able to deduce whether the business can hold its end of the loan agreement.
The existence of a business is all about money. It does not matter if it is big or small. So being able to track money is an essential part of running a business otherwise it will run down.
Works Cited
Bench Accounting. “Bookkeeping Basics for Small Business Owners.” YouTube, 15 Nov. 2018, www.youtube.com/watch?v=W-ajzzE_upM. Accessed 2 Feb. 2020.
