Accounting refers to recording financial transactions of a business comprehensively and systematically. Some of the processes involved in accounting include summarizing, analyzing and reporting the transactions to the relevant agencies. Here is why accounting is important in any business organization.
Budgeting is an integral process in every business. With a proper budget, a business can make strategies, save money and identify any expenditures that are higher than the budgeted amount. Planning a budget requires the previous records which have been well maintained, thanks to accounting.
2. Banks And Lenders
If your business applies for a loan from a financial institution, you need to present your financial records so the lenders can have an idea of your current financial status. Keeping such records requires accounting to maintain a proper system of organization with the assets, liabilities, profits, taxes and much more.
3. Proper Record Keeping
Any organization needs to keep proper records so they can be used for decision-making purposes and many other processes in the organization. Accounting plays a huge role in maintaining the books. All the records need to be collected and organized as well as interpreted whenever needed. Therefore, whenever any decision needs to be made regarding the business, there should be proper records in place.
4. Decision-Making Purposes
Any economic decision regarding the business is determined by the current financial status of the business. All these financial statements can be ascertained properly with good accounting. If it wasn’t available, the executives would have a hard time making any viable decisions about the business. Actually, they would be operating blind and it would be tough to achieve any organization objectives.
5. Providing Investors With Relevant Information
The financial accounts are used to represent the organization to relevant parties and stakeholders. These include creditors, investors, government, debtors, employees, and customers. Investors are bound to flee from your organization if you don’t have financial records. Therefore, with such records, thanks to accounting you can present the true account of the business.
6. Reporting Profits
Any organization needs to make profits so as to run comfortably. Whether it’s a small or a large business, it needs to maintain proper books of accounts so they can ascertain all the transactions being made. Also, any interested parties would be able to make relevant decisions regarding the progress of the business.
7. Managing And Monitoring Cash Flow
If the business is bankrupt, it’s hard to make any money. Therefore, a proper accounting system needs to be in place to help manage and monitor the cash flow. The books of accounts should report the working capital and any other cash needs within the organization.
Now that you understand the importance of accounting, you need to take time to hire the right accountant for your business. Depending on the available resources, you can choose to outsource the accounting department or hire an in-house accountant. However, everyone needs to be vetted properly to make sure they practice integrity. Otherwise, they would cripple your business completely if left to their own deeds.