Why Accounting for Small Business?Posted by Celeste
When you are starting a small business, your “to do” list is incredibly long and varied. Inevitably there are some tasks on that list that you’ll put off for another day. Perhaps these tasks are difficult or maybe distasteful, or maybe you just don’t know how to approach the problem so you procrastinate. Setting up your accounting is usually one of these tasks. Numbers! Yuck.
Accounting for small business shouldn’t become a casualty of to do list apathy – it is far too important to put off for another day. It is also nothing to be intimidated by. There are two questions to keep in mind when you are keeping track of money spent and earned: ‘How Much?’ And ‘Why?’
Keeping track of how much money was spent and earned provides you with data that can tell you which activities in your business earn money, and how much it costs you to earn that money. There are some expenses that don’t earn money directly, but that you can’t do without. Lights, heat, and telephone service all have to be paid whether there are customers around or not.
Other expenses do help you earn money – like marketing – but perhaps you could do them differently and increase your margins. Only a good accounting process can tell you for sure. By automating some marketing processes, you could make your company more efficient and serve a larger number of customers at a lower cost.
Maybe you took an action to decrease your expenses but in so doing decreased your ability to earn revenue. If you swapped out the steak on the menu of your restaurant and substituted liver, it might cost less, but you would probably sell less of it.
It could also be that you reduced costs in one area, but ended up increasing costs in another area to compensate. If you are painting houses and buy the cheapest paint, you may end up having to do multiple coats and pay extra for labour.
With accurate record keeping and the help of an accounting professional, you can gain insight into what you are doing right in your business and what needs to change. Without information, you will be wandering around in the dark.
What’s one thing your accounting reports told you about your business, that you didn’t know before? Leave us a comment and tell us your story.