30 Reasons to Invest in Your Accounting
Let’s start with some common ground in this conversation; you don’t need to do everything people say you should. People will try to get you to do things that are completely absurd. Even if you agree the activity is not absurd and is worthwhile, if you completed what ‘experts’ say you should do each day, it would be physically impossible to do in a twenty-four-hour period, let alone repeat it daily.
When your accountant tells you that your accounting books “should” be reconciled monthly, it is understandable that this “should” lands with the other “shoulds” in the guilt trash-heap of your mind. It falls next to flossing, consistent exercise, and that nagging belief that successful people don’t hit the snooze button.
However, if you do not automatically discard this statement with the other “shoulds”, you may stop to consider why your accountant is telling you this.
As an owner, you can run your business any way you want. Each owner manages their business differently living out their personal beliefs and values. Businesses that consistently outperform, however, tend to act similarly when it comes to accounting.
Learning to manage your business is a crash course. While school prepares people for careers, business owners generally learn from experience. Establishing best practices in your accounting is generally not a high priority.
Let’s also agree not all accounting is terribly difficult or exciting.
As a profession, accounting exists to keep your business going, “laying the tracks,” so to speak, for the rest of the business to run on. It is not particularly exciting and those of us that call ourselves accountants know the personal ramifications when we enter the profession.
To be even more precise, the accounting that happens in your business allowing you to pull accurate financial statements, run payroll, pay invoices and receive payments is even more mundane than others. In the accounting world, it is even less attractive than other types of accounting. (Yes, there is a hierarchy in accounting.)
For a discipline to stick, everyone needs to understand the “why”.
As a discerning business owner, you need to be absolutely convinced of the value of clean and accurate accounting files before starting a new discipline. A solid foundational “why” belief implemented into your business will assist you to build this core process of your business. Understanding the “why” will avoid “joining the gym in January only to drop your membership by March.”
Building a business is a marathon. Solid financial management is integrating rhythms that lead you to your goals.
With that in mind, the following is a list of reasons why you would invest in a solid accounting system to provide accurate financial statements for your business.
- Accounting is the language of business. Prove you are fluent in business in the way you manage your books.
- Easily and painlessly take advantage of financing. Quickly prepare a current internal financial statement for a bank, vendor or another financial partner to grab a low rate or…
- Access government stimulus programs. The first round of the Paycheck Protection Program (PPP) was only for those prepared for it. There was a rush to get funding and only the businesses who had their books in order were able to apply.
- Appear like you know what you are doing. Use accounting to make yourself look good…because people talk.
- Match your marketing with your operations. Back up your promises with solid operational efficiency and record it properly. Provide a seamless client experience from sales, through operations, and all the way through finance.
- Your accounting files communicate your business to others.
- A solid accounting system is like doing a daily “Beachbody” workout. After consistent exercise, you are not as self-conscience about taking off your clothes when you get to the beach. In the same way, you can be confident showing your financial statements to a potential financial partner.
- A well-run business runs on systems. Accounting is an essential system of your business.
- Excellent businesses are managed. All three legs of the stool need to be managed: operations, sales, and finance. Neglecting one “leg” of the stool will lead to an imbalanced business.
- Promptly paying invoices builds goodwill with your vendors. There is reputation risk of missed payments to vendors because of poor internal controls.
- Avoid decreased cash flow from missing or not recording customer payments and accounts receivable.
- Avoid 10x the problem in future months by catching the problem today. Researching historical accounting problems takes much longer because people forget.
- Reconciling an account soon after the month-end is the easiest time to do it.
- Solid financial management discourages employee fraud and embezzlement.
- Clients know you are watching your business.
- Vendors know you are watching your business.
- Employees know you are watching your business.
- Forecasting is only as accurate as the information used to prepare it. Garbage in, garbage out.
- File your sales tax on time every month and avoid penalties.
- Increase your odds the tax authorities act in your favor by addressing penalties quickly.
- File your 1099s accurately and on time.
- Avoid accuracy fights with your vendors when you do file 1099s.
- File your income tax return on time (without extensions).
- Minimize emotionally reactive decision-making. Manage your business by the numbers.
- Avoid forgetting to remove an employee from the payroll and continuing to pay them after their termination date.
- Catch and stop recurring expenses after you have stopped service.
- Avoid bad debt write-offs by discontinuing to serve clients who will not pay.
- Ensure distributions are proportionate so your corporate status is not revoked.
- Bankers and other investors know you value and prioritize financial information.
- People talk.
While this is not an exhaustive list, these are 30 reasons why businesses invest in accounting. Growing the accounting infrastructure of your business is essential to avoid growth bottlenecks. The discipline of this function will pay dividends as you scale your business.
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