6 Key Accounting Functions for Small Businesses
Accounting is a $100 billion industry in the United States. Nearly one in five small businesses fail in the US within the first year due to workforce issues, financial constraints, or poor business plans. It is because accounting is a crucial component in small businesses, which helps them manage their cash flow, support financial audits, and ensure all tax returns get submitted on time.
Following these examples, it is easy to see why small companies need professional accountants to help them manage their organizations. These enterprises can use accountants to ensure they’re making all the right financial decisions, from choosing the most appropriate suppliers to paying their utility bills on time and ensuring payrolls get distributed on time. However, this is the most superficial view of what accounting can do for small businesses; there’s a deeper glimpse of what this department handles:
What Is Accounting?
Accounting is the process that records and manages all financial transactions related to the business. It is an elaborate procedure that involves summarizing, analyzing, and reporting these financial operations to regulators and tax collection agencies. Accounting standards help an organization to improve its reliability, manage its balance sheet and look after its cash flow statements. As a result, small companies can maintain a standard and be completely transparent with all their clients.
Different accountants work as a team to help keep this business model. Each professional plays a distinct role in auditing records, paying taxes, and cutting back on costs. Depending on which route a prospective accounting professional takes, they can choose from a range of accounting careers and become forensic accountants, senior financial analysts, and chief financial officers.
Integral Accounting Functions for Small Companies
About 21% of SMB owners don’t know enough about bookkeeping. This lack of knowledge can pose a problem since poor control over company finances may be the reason why an enterprise collapses. However, with a solid accountant on board, here are some core tasks organizations can achieve:
- Sales Forecasting
Companies can’t focus on earning and making a profit without knowing how they will make consistent money throughout the year. Small companies need insight into how much their sales departments can generate by the next quarter. This insight gives an organization an outlook on whether they can maintain their numbers or need to change how they do business.
Accountants can predict what the subsequent sales will yield. They gather and organize a business’s history and financial data to make a forecast. As a result, accountants can see a pattern in the firm’s financial performance and suggest changes that can encourage more sales. These professionals also run a cost assessment and risk analysis to inform owners if the current money-making strategy is sustainable.
- Keeping Up with Journals Entries
The type of journal accounting is very different from what you do daily. These are financial records arranged chronologically using the double-entry bookkeeping system to keep tabs on the debit and credit a company incurs. Each entry contains essential information on a particular business transaction, including the date the amount was credited or debited, a description of the transaction activity, the number of accounts impacted by this act, and the number of subsidiaries lost.
Entering this information is crucial because it ensures that the general ledger and financial reports extracted from these data entries are accurate and complete. The purpose of this operation is to understand the pending needs of the company and if they have the resources to accomplish them. For example, if a small business wants to clear its debts, it needs to know how much it owes and where it got its loans.
- Integrating Disruptive Technology
Disruptive technology is innovations that facilitate tasks and actions by getting rid of manual labor. These facilities make doing repetitive tasks easier and prevent the workforce from focusing on one activity, increasing productivity and efficiency and maximizing sales. Part of being an accountant is introducing the latest accounting software and streamlining work. Smaller enterprise programs are cost-effective and easily fall in line with the budget.
Common examples include Zoho books, a practical application for sending invoices, reconciling accounts, tracking expenses, and generating reports. Another prominent example is Sage business cloud accounting, another excellent micro business helpful software for invoice creation and archiving past transaction details. Finally, Quick Books is a convenient bookkeeping program, eliminating the need for physical records.
- Updating Inventory
Businesses need a certain amount of inventory to function. These include raw materials, ready-made products, office supplies, and packing materials. If these items fall short in stock, it can halt business activities. Consequently, this can trigger a domino effect; If an item cannot ship out, it can delay payment and cost a business more money to make up for a lost sale. This break in communication isn’t good for businesses since it can demotivate consumers and push them to purchase their products from other companies.
Mismanaged inventory leads to massive financial loss, and a company may close down if this continues. However, an accountant’s intervention can prevent small businesses from running out of stock and losing sales. They do this by checking the inventory and letting managers know when to re-stock before time, avoiding a break in the sales chain.
- Settle Unpaid Receivables
Certain small businesses allow consumers to pay early or in installments instead of the entire amount. It encourages consumers to continue purchasing from small businesses with flexible payment methods, resulting in a good consumer relationship. However, late payments can hurt a company, and consumers who take too long to settle the amount can impact the overall budget.
Small enterprises work on a budget. It depends on the cash flow, profit, and consumer payments, so not getting the defined amount by the end of the quarter pushes a business to cut down. Accountants can remind consumers to make their payments by tracking all the pending purchases and contacting clients after a prescribed period. If the consumer continues stalling, they can impose a late fee or charge interest to compensate for company losses.
- Calculate Estimated Taxes
Small businesses must file quarterly tax returns, including submitting their social security number, income taxes, and insurance information. Accountants can do this for small business owners through electronic forms on the IRS website. Around April, accountants can file annual tax returns by submitting details not covered in the quarterly payments.
Small businesses need all the help they can get to thrive in the commerce sector. Running a company involves managing several tasks at a time. It includes looking after the cost of keeping operations afloat and managing their funds adequately. However, all it takes is one slip-up, and a company may have to shut down if it cannot track all its expenses and spend more than they earn.
However, with the help of a robust accountant, small businesses can ensure that their enterprise streamlines cashflows and continues making a profit. Accountants perform various tasks. These roles venture into sales forecasting, making journal entries, bringing cost-effective tech innovations, and ensuring the inventory gets stocked. Additional duties include reminding consumers to make all their pending payments and submitting tax forms on time. These all aim to cover all the financial expenses of the companies while minimizing losses.