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Accounting,  Business Owner Learning,  Entrepreneurship,  Independent Learning

How Does Accounting Help Businesses?

​​​​​There are many ways that accounting can help businesses. Learning the basics of accounting is important for a business owner to understand to help them keep control of their finances.

Accounting helps a business to maintain complete control over the finances. It can also help to reduce overheads and minimise the amount if business tax that you have to pay.

If you are running your own business, then you may find you do not always have the time to keep on top of the accounts. There is also a lot of in-depth knowledge required and there are not many business owners that have this.

Key ways an accountant benefits business

Good accounting practices can help your businesses understand its financial strengths and weaknesses.

How Does Accounting Help Businesses? Man working on laptop.
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Here are some of the key ways in which an accountant can be a linchpin of your business:

  • Improving cash flow
  • Buying or selling a business
  • Business advice
  • Setting up your business
  • Funding for growth
  • Paying the right amount of tax
  • Saving tax
  • Growth management
  • Audits
  • Reducing your workload
  • Bookkeeping and financial reporting
  • Regulation

It is fairly common for small businesses decide to hire an accountant so that owners can concentrate on running the business.

Hiring an accountant will certainly free up some time, but they will also bring several other advantages.

A good accountant will also be able to help you manage risk and ensure that your business is compliant. They can also help you plan ahead to enable you to grow your business.

Many of the decisions that you make for your business will have financial implications, so it can be good to have an accountant on hand to discuss things with.


Why Accounting Is Important To Small Businesses?

Accounting allows small businesses to evaluate how the business is performing financially.

Why Accounting Is Important To Small Businesses? Girl student with a laptop
Girl student with a laptop

This information is important for business owners, shareholders and investors.

Some of the information that accounting can provide includes details of costs and earnings, profit and loss, liabilities and assets and this can help inform decision making and planning for the future.

The main reason for accounting is to ensure that a record is kept of all financial transactions.

This is important so that you know where your business stands financially, but it is also a requirement that any business which pays tax should at least keep records of their income and expenditure.

Accounting is sometimes called the ‘Language of Business’ and this refers to the fact that the financial information that it communicates is important in all aspects of business.

A list of the main objectives of accounting can be found below.

Recording Transactions

All financial transactions of the business should be recorded accurately and systematically, and this is the main reason for accounting. It is important that business owners are able to review these transactions whenever they need to.

Budgeting And Planning

Business owners needs to have firm plans in place for how they are going to grow their business.

This includes knowing the equipment that will be needed and how many staff will need to be employed.

In order to be able to plan this effectively, owners need to know the budget that they have available. This is another example of why accounting is so important for effective business management.

Decision Making

Accounting is also really useful in enabling owners to make decisions that will improve the profitability of the business.

Accounting information can be used to make decisions about the prices that will need to be charged for products or services. It also shows the opportunities that may be available for financing and expanding the business.

Business Performance

The accounts are the best indication of how well a business is performing. The key performance indicators of the company can be measured against the accounts to give an accurate picture of the current situation.

It allows the business to compare how it is performing today, compared to a specified period in the past.

Financial Position

Financial statements will be generated at the end of every accounting cycle. They will show the capital that has been invested and the funds that have been used.

It also shows profit and loss, and the assets and liabilities that the business has.

Liquidity

One of the most common reasons that small businesses fail is the mismanagement of finances.

Liquidity refers to the amount of cash and assets that the company holds which can be used to meet financial commitments immediately.

Accounting can help to ensure that you always have enough liquidity to cover your obligations.

Financing

If you need to secure financing for your business, then you will need to present your accounts to the potential lender.

Control

Accounting can act as an internal control that will help prevent losses. This reduces the likelihood of money being lost through theft, fraud, mismanagement or errors.

Legal Requirements

It is a legal requirement that an accurate record of their financial transactions is kept to be able to present to shareholders, regulators and the tax office.

Accounts will also help when it is time to file your taxes.


How Can Accounting Improve Your Business?

The majority of accounting involves working with transactions that have already happened.

How Can Accounting Improve Your Business?. startup business success - learning Entrepreneurship skills
startup business success – learning Entrepreneurship skills

The accountant will spend a great deal of time looking at historical transactions when completing tax returns.

However, accountants also have skills that enable them to forecast what might happen in the future with relation to finances.

Some other ways that accounting can improve your business are listed below.

Reduce Business Expenses

An accountant can help you identify where it is possible to save money within the business. They may also be able to reduce your tax liability.

Manage Cash Flow

An accountant will be able to help you see the money that is coming in and out of your business so that you know the amount of money that is available to spend if needed.

Provide Evidence For Business Strategy

If you have a plan for growing the business, then an accountant will either be able to back you up with financial evidence, or point out why it is not a good idea.

Help Identify Key Performance Indicators

There are certain indicators that you can use which will give you an overall idea of how the business is performing. Your accountant can help you identify what these are.

Compare Results Against Industry Standards

If your accountant has experience in your industry, they will know how your business is performing compared to industry standards.


​​​​​There are many ways that accounting can help businesses. Learning the basics of accounting is important for a business owner to understand to help them keep control of their finances.

If you a business owner looking to improve your accounting skills learning accounting skills as a business owner can help your business grow.