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The Importance of Accounting for Business Success

The Importance of Accounting for Business Success

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27th August 2020

Dexter Lawrence Written by Dexter Lawrence

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An expert accountant will deal with all the complicated regulations and deadlines that come with running your own business. They will also know the legal workarounds for getting everything done more efficiently.

This will free up plenty of your valuable time, as a business owner, so you can spend it on the important task of growing your business, improving your product and expanding your team.

A huge benefit of hiring an external accountant is that it can save you money. Your accountant assumes the role of a part-time employee. You won't incur the expense of having a full-time, in-house accountant on your payroll. You will pay an external accountant only for the services they provide for you. This can vary, according to the type and size of your business.

If you had an in-house accountant, there would be seasonal fluctuations in their workload, so you may end up paying them a large salary, even when their workload is not as heavy. A good external accountant will work for you exactly when they are needed and will do everything in their power to make your business a success. After all, their own reputation and success as a service-provider is based on how they take your business to the next level.

Experience and knowledge

When it comes to the financial tasks of running a business, experience and prior knowledge is everything. Navigating the dense web of financial regulations and keeping up to date with legislative developments and news from HMRC can be incredibly daunting, but that is what accountants do every single day. Not only do they understand the current landscape, they also understand the historical context of tax legislation, which is vital when assessing whether new laws impact your business.

If anything, this is a great way to learn from your accountant and to understand the fundamentals of accounting from a verified expert. For example, with Making Tax Digital just around the corner, we’ve received a lot of questions from people about the implications this has on their business and what they need to do to comply with the new regulations.

HMRC has a knack of introducing legislation that is unnerving for those who aren’t in the know but enlisting the services of an experienced accountant means you won’t have to run around like a headless chicken looking for all the answers. Making decisions would be nothing more than guess work and you would be likely to incur penalties for not submitting tax returns to HMRC on time. The importance of accounting is paramount for business success, whether you run a small, medium or large company.

Keeping organised

It keeps you in constant touch with how your business is faring financially and helps you to make informed decisions every step of the way. In short, accounting keeps you organised. Without it, you wouldn’t know how your current profits or losses compared to the previous year's figures.

It reminds you which customers have and haven't paid, what debts your business owes and exactly how much all your accounts payable and receivable are. You can keep organised so your tax returns are filed accurately and legally.

Filing tax returns

A lot of small and medium business owners dread tax filing - some because they don't know where to start and others because they realise how time-consuming it can be, eating into their working day, when they really need to be doing something else.

Filing your tax return means collecting together financial records and statements, as you can't do anything without them. Then, you need to fill out the dreaded tax returns. This means completing an audit, as if there are any queries from HMRC, you must show them you have the necessary accounting information to back up your return.

At the very least, you will need to complete an annual tax return as a legal requirement of running your business. The importance of filing a tax return cannot be under stated, without it business owners face significant fines.

Keeping shareholders happy

If your business has shareholders, you need your accounts to show them how the finances are doing, rather than just telling them. You're accountable to the shareholders - they will want to see your business's growth and success by browsing your accounting records.

Accounting also helps you to hold employees accountable. Keep up-to-date with reconciling bank statements, invoices, bills and receipts, so you know exactly where you are financially in real time.

Shaping decision-making

Accounting guides your decision making in terms of what you can and can't afford, such as whether to buy a new, top-of-the-range laser printer, or whether to make do until your finances are looking a bit healthier.

When it comes to your expenses, your company accounts can help you decide if there's anything you can cut back on to reduce spending. The answers to the important questions lie within the data in your accounting records. They can help save you from making common business mistakes, such as overspending. which can be detrimental for businesses and business success.

Keeping up-to-date accounts enables you to conduct a risk analysis for a small business before you decide to make a change. You can decide in advance whether the risk may be too damaging to your business before you make a decision on whether to go ahead.

Applying for investment

Keeping proper accounting records is also crucial when it comes to applying for loans or getting investments. Lenders will wish to know about your business before they invest in your company - and that means checking the financial statements and making sure you're a good risk before they put their hand in their pocket.

Without organised accounting books, you’re in trouble. They can let you know in advance whether you're starting to struggle and what adjustments you must make to keep afloat.

Accounting isn't a choice - it's a necessity for business success. Many businesses who feel they don't have the know-how to handle their own accounts employ the accounting services of an expert. This can help you to navigate the potential minefield of legislation and administration work, without the personal hassle.

To find out more about the benefits of having an external accountant read our article 5 reasons why SMEs need an Accountant or
contact DL Accounts today for a no-obligation chat.

Suggested Further Reading: How to Organise your Business Finances