Much like the foundation of a house ensures a strong and stable structure for many years to come, proper accounting of your business’s activity ensures the likelihood that your business will ultimately succeed. During a time where eight out of ten businesses fail within the first 18 months, having a solid accounting foundation to your business can help prevent you from having to give up on your dream.
Below find just a few of the many ways in which a solid foundation of accounting to your business can help you succeed.
Whether it be necessary startup capital, a line of credit you need to get you through a slow season or a loan to finance a piece of equipment, lenders and banks will in just about all cases require financials or tax returns to judge your business’s ability to make repayments. In the event you’ve just started operations, you’ll likely need to produce and support a realistic budget of income and expenses. Believe it or not, I have encountered profitable businesses that have been unable to secure the financing they need simply because they had not produced or filed any tax returns since beginning operations.
Budget Your Cashflow
This is particularly important for seasonal businesses. I’ve worked with businesses over the years that were flush with cash during the summer months from operations but struggled to make payroll and cover overhead during the offseason winter months. As a result, they bounced checks and incurred thousands of dollars in bank overdraft charges annually. By maintaining current and accurate accounting records, we were able to budget accordingly for the slower months of the year and eliminate this problem, as well as alleviate the owners of some significant headaches.
Keep Expenses in Line
If you don’t have an accurate accounting of what you’re spending where, how would you know if you’re overspending in certain areas? As common practice, you should be reviewing your income and expenses comparatively with the prior year or period. Is your gross income rising or declining, why? Why has your insurance expense doubled over the last year? These are things you or your accountant should be reviewing at intervals during the year to ensure you are not overspending in any particular area. In addition, your accountant should be making recommendations with certain expenses they know you may be overspending on unknowingly, such as payroll or credit card processing fees.
As a business owner, you have to wear many hats. Be sure not to overlook that which may be of most importance, and most integral to the sustainability of your business – accounting.