Accounting involves preparing and analyzing financial reports, taxes, and other reports. It’s similar to bookkeeping. You can find bookkeepers in smaller businesses while larger organizations usually use accountants. Accountants have certain credentials and experience that bookkeepers often lack. Accountants typically deal with more complex systems, but both bookkeepers and accountants serve an essential role in an organization. Why does accounting matter so much? Here are ten reasons:
#1. Every industry needs an accounting system
For as long as money has existed, so has accounting. Historians have evidence of accounting systems as old as ancient Egypt and Babylon. The Roman Empire kept detailed financial records. Modern accounting has existed as a profession since the early 19th century. You can now find bookkeepers and accountants in every industry and every type of organization, profit and non-profit. All businesses need to manage money, financial records, and taxes, so all businesses need an accounting system.
#2. Accounting keeps a business organized
There are many groups interested in an organization’s financial records, including investors, lenders, and employees. Certain types of organizations (like nonprofits) benefit from being as transparent as possible about their finances. If your records are messy, it can have a negative impact on your reputation and the health of your business. An accounting system keeps these often complex records organized, so they’re easier to access and give to the interested groups.
#3. Accounting helps evaluate a business’ performance
An organization’s financial records are a reflection of its health. If you want to know how your business is doing, the financial records give you information about expenses, gross margin, debt, and more. A good accounting system makes it easier to look back in the past, as well, and make comparisons. You can see if things are better or worse.
#4. Accounting helps you stay within the law
Having good accounting systems and processes helps keep your business in good legal standing. One of the main duties of an accountant is to handle the organization’s financial matters according to various laws and regulations. At any time, an organization’s business might be reviewed, so the financial records need to be accessible, accurate, and organized. Not having good records can get your business in serious trouble.
#5. Accounting helps with budgeting and future projections
Budgeting and future projections let you plan for the upcoming fiscal year. Using your past financial records for this process is essential. An analysis gives you an accurate starting point, so you can use the past as a blueprint for a more profitable future. An accounting system designed by an expert gives you the information you need for budgeting and future projections.
#6. Good accounting helps you avoid audits
No organization wants to go through an audit. A poor accounting system opens the door to the kinds of mistakes that catch the authority’s eye. Mistakes can include messing up a tax form, claiming too many expenses, claiming too many charitable donations, and more. Having a good accountant on staff prevents mistakes and decreases the likelihood of an audit, especially for small businesses.
#7. Accountants know how to deal with complex taxes or large amounts of money
There are a few reasons why a person or organization’s taxes might be more complicated than normal. If you’re self-employed or have many income streams, your taxes can be tricky. If you or your business receives investment income, you’ll also benefit from a good accounting system overseen by a professional. Coming into a large inheritance as an individual or giving a large financial gift makes your taxes more complex, too. An accountant can help you manage the money and make your life easier.
#8. Accounting improves an organization’s decision-making
It’s hard to make decisions about a business without accurate information. A good accounting system provides the information necessary to make decisions about the future of the organization. Analysis of financial records can also help a company make decisions about hiring employees, making purchases, gifting charitable donations, and more.
#9. A good accounting system saves an organization time
If your accounting system isn’t good, you’ll spend a lot of time sifting through records and trying to understand information that isn’t organized well. Preparing for tax season would be a nightmare and take up a lot of your valuable time. Having a good accounting system and accountant on staff makes the money-managing process much smoother and faster. An organization can now spend time on other areas of business.
#10. Good accounting helps you get more deductions
During tax season, it can be challenging to know what you can deduct. An accounting system that tracks your organization’s finances throughout the year makes the process easier. An accountant can also point out deductibles you might not have known about. This is helpful for both organizations and individuals.