Are You Letting Money Waste Your Time?
Small businesses in that position are doomed. The numbers prove it. The Small Business Administration reports that nearly two-thirds of new businesses are alive and well two years after inception, while only around 40 percent of those business still have a shingle to stand behind two years later. Why? Simply put, they screw up. By mismanaging their capital–whether it be from bad investment, poor revenue generation, a lack of workable capital structure, or poor accounting practices–a business is just counting down to the day that it’s doors are forced closed.
Good reporting is crucial to help you build your business practices, so why wouldn’t it be important when it comes to your finances? Proper bookkeeping and accounting can help you make accurate predictions about what your business is capable of, and allows you to set a workable budget. For some small business, the two practices may be one and the same, but for many sustainable businesses, you have to understand the difference between good bookkeeping and useful accounting.
Let’s be clear, keeping the books is mandatory for good accounting. Bookkeeping is the process of recording all the financial transactions your organization makes. All the sales, the expenses, business-to-business transactions, bank records, and more are recorded in the organization’s general ledger. The more detailed the books are, the more information that will be available when it’s time to make (what could be critical) financial decisions for the business.
Most of the bookkeeper’s responsibility is to keep the books, generate invoices, and in some organizations, complete payroll. The more irons your business has in the fire, the more complex the bookkeeping duties are. If your organization does hundreds or thousands of transactions weekly, your bookkeeper has his/her hands full.
Accounting is the language of business. It is the actual process of processing and communicating financial information to the powers that be. Analysis sits at the center of accounting. While the core statistics that are kept by the bookkeeper are necessary for clear analysis, accounting is mainly the practice of assisting decision makers to understand how their capital is to be dispersed (taxes, payroll, operations, etc.), what financial options the organization has, and the organization’s overall financial standing.
For the small business the role of accounting is complicated. Not only do managers need to manage the financial margins of the business, but the also need to ensure that operations are running efficiently, as to not waste capital. Since losing money is not a sound strategy for any business, having a sound accounting strategy can make a significant difference.