Most people starting or buying a small business fully understand that every business needs accounting in some shape or form and that a professional firm of small business accountants is required to support their business.
Without experienced accounting services how would businesses be able to understand their financial position and future growth (or decline) and make the right decisions for their business?
However when we chat with other accountants in London at industry awards events or conferences we often find that we have all been asked “what is accounting”?
So let us use this blog to clear any muddy waters regarding what is accounting and why you need it.
Defining Accounting
Accounting is often defined as the language of business and is the benchmark for measuring a businesses past, current and future financial position and its economic activities.
Another term widely used among small business accountants and their clients is financial reporting. The term fits the main function of many accountants as it focuses on the analysis of a business’ financial information, and the subsequent reporting to all of those who require it as a financial statement.
So a simple way to put it is that accounting and its subsequent reporting is the way your business records and understands its financial information.
So How Does This Help?
Accounting helps you run your business in probably more ways than you could imagine.
We presume that one day you will want to sell the business and buy that longed for Yacht or Villa in the sun and retire, but without a good history of accounting information, financial statements, profit and loss sheets and tax information, plus all the other wide range of reports and information that your accounting services place at your disposal, how will you obtain the best price for the company?
The devil is in the details and anyone buying a business will want to see several years of accounts and financial reports, your retirement could depend on it.
Another scenario is that you finally win that hard fought for “big order” and need to expand production, recruit staff, take on warehousing and make a number of other business changes for which you are going to need investment or support from your bank.
Your small business accountant plays a critical role in helping your business raise finance and should be your first call to discuss the plans and your requirements. Accountants will also advise you on the most cost effective way to raise the capital, both in terms of interest or capital repayments and for taxation.
Keeping up with your accounting ensures that with regular meetings or calls with your accountant in London, you stay on top of your business finances. All business owners or executive officers need to assess how our business is developing and have a financial guide to future decision making.
A Few Accounting Terms
Every business is different, but to make accurate financial comparisons between companies, there is a need for a common language of standards and procedures, and terminology.
Tax Accounting
Tax accounting is the process that ensures you don’t pay a penny more in tax than you are legally required to by HMRC.
Accounting requires extensive knowledge of the tax system and all its quirks and lesser known rules. The last thing any business needs is to pay too much tax, but also you have to ensure that you are paying the correct amount and not a penny more.
Your end of year tax return is when your small business accountants really come to the fore and will save you, time, effort, headaches and of course “money”
Financial Accounting
At the end of each financial year your company will generate financial statements that people such as investors, banks, government bodies, auditors and any potential buyers, will take a keen interest in.
Preparing the company’s annual financial statements this way is called financial accounting and is the process of recording, summarising, and reporting the wide array of transactions from your businesses day to day operations.
Cost Accounting
All businesses reach a stage where you are trying to analyse how to increase your margin or if raising prices is a good idea in terms of margin and forward sales. This is known as cost accounting and a valuable part of our accounting services.
Cost accounting involves looking at every cost that is associated with producing your products or services to deliver a starting point that enables you with your accountants to make better decisions about pricing, spending and the size or complexity of your stock inventory.
It’s a key exercise for many businesses as high volume sales might not always transmit as high profit.
Credit Accounting
This is where we move away from sales and expansion and look at the company’s basic costs, borrowing or debt costs. Credit accounting reviews a businesses unpaid bills and liabilities both now and forthcoming to make sure that your businesses cash flow isn’t constantly tied up in paying bills, interest, debt management and loan returns etc.
Discussing a business’s debts can be a sensitive, but a very necessary, conversation. Premium small business accountants ensure a business is sensibly managing debts like credit cards, loans, and accounts payable, while meeting their day to day expenses.
Credit accounting via balance sheet shows everything you owe in one place along with the businesses bank account balances and also looks at forthcoming tax bills so you can make informed decisions to manage your debts and plan future payments.
The Close
Your small business accountant is involved with far more than just your year end tax preparation. Their experience will deliver reporting regarding your company’s financial state to you in clear language, while anticipating the possible financial needs of the company for the future and dealing with any issues that are highlighted.
You are now able to see the value that professional accounting services provide your business. With the right small business accountants, tools, and resources, accounting doesn’t have to be a drain on your time.
When you have good accountants and bookkeepers you are able to focus on growing your business and delivering customer service, without worrying if that important document has been sent to HMRC.
Experienced and professional accountants in London are easy to find, just click here for a free consultation or to book an appointment.
I appreciate how you pointed out that your small company accountant is involved in much more than simply doing your year-end taxes. Their expertise will enable them to provide you with clear information on the financial status of your business, as well as to anticipate and address any concerns that may arise in the future. I recently launched an auto business, and I need an accountant to assist me with keeping track of my finances and doing my taxes. Once I locate a reputable accountant in my area, I’ll make sure to make hiring one into consideration.