Businesses, regardless of size, must be prompt with their accounting. To be compliant, they must follow an accounting process that enhances their ability to summarise, analyse and report financial transactions.
Once installed, the owners must follow the 8-step accounting process diligently to ensure their company’s compliance. If needed, an experienced accountant can assist them with it.
Proper accounting processes, procedures, and setups increase business’ efficiency and successfully avoid major issues. Most importantly, it simplifies bookkeeping and helps in making effective financial decisions.
Importance of Accounting Processes for Small Businesses
Managing Accounts Payable
The owners must be prompt with the accounting for small businesses. It starts with the on-time filing of paper documents and careful recording of financial transactions.
Otherwise, they may forget the invoices and other payables with small amounts. Not paying their vendors on time can affect their credibility. They may get fined or penalised and lose their credit privileges or the status of the favoured customer.
The only way to avoid such a scenario is to install a well-defined accounting process. It streamlines the accounts payable process and generates accurate data. It is useful in account reconciliation and preparing accurate Profit and Loss Statements.
Managing Accounts Receivable
The effective accounting process also assists businesses in recording and tracking their earnings. It enables them to keep tabs on the invoices sent to the customers. It especially eases the tracking of unpaid receivables or invoices.
The accounting process comes in handy when the clients are billed differently. A robust system accommodates the full-upfront, weekly, or monthly payments. It also allows for the billing of large projects where the invoices are sent as per the stages of the job.
Effective accounts receivable management enables owners to avoid cash flow problems. It holds clients accountable for on-time payments. Eliminating late or missed payments helps a business ensure reliable cash flow and a healthy bank account.
Analysing Business Finances
At the end of the monthly, quarterly, or yearly accounting cycle, the accounting process helps systematically update books. The bookkeeper makes the closing entries.
The bookkeeper then uses the data to prepare an income and cash flow statement and update the balance sheet. The data analysis gives an accurate picture of the business’s financial health.
The owners can compare these with past data to know the growth or decline of the business. The updated balance sheet lets them see the company’s performance on the Key Performing Indicators.
Tax Preparation
There is no need to highlight the importance of accounting processes for small businesses. Tax preparation is part and parcel of their and big businesses’ financial activities. And true to the form, those who are consistent with it over the year can do it without stress. They have internal bookkeeping & accounting controls to help plan their taxes.
Regular accounting for small businesses ensures that all goes well. Still, many small business owners fail with it. And at the onset of tax season, they have to scramble to hire an accounting services firm, their books updated and tax preparation. All this is an open secret.
Forecasting and Planning
Small business owners need to watch out for market trends. Many of them are not solid enough to survive adverse changes. However, they can prepare for the such eventuality by hiring the right accounting services. These firms can help them with budgeting, forecasting, planning, and cash flow management to improve their survivability.
Effective accounting processes enable them to forecast their cash flow accurately. The forecasting help businesses plan their expenses for the next 1, 2, or 3 years. It lends potency to the decisions: hiring new staff, business expansion, buying assets, Etc.
The effective accounting process is essential in ensuring a business’s financial health and growth. These enable owners to minimise short and long-term problems. If you are yet to implement an accounting system for your small business, email us at contact@grogroup.co.in to start a discussion.
