Most business owners get into business because they want to turn a passion, a unique skill or a good idea into a livelihood. They don’t get into it for the accounting (unless, of course, they’re accountants).
But accounting isn’t just housekeeping – it’s a vital part of any company’s success. Accounting is strategic.
Impact of Bad Financial Strategy
Poor financial management directly affects your company’s bottom line, and your company’s bottom line directly affects your ability to stay afloat or grow.
The difference between good and bad accounting can mean the difference between surviving and failing. A lot of companies fail in the first few years of their existence because of mistakes in their accounting.
Those mistakes can adversely affect your cash flow, make you late on payments (which can hurt or ruin your relationships with business partners, customers and even employees), prevent you from making strategic investments when you need to, hinder your ability to grow and even get you into trouble with the IRS.
In short, bad bookkeeping and accounting can get in the way of doing business, hurt your relationships and reputation, cause legal trouble and even shut you down altogether. They’re a much more important part of business than many realize.
Why Bookkeeping Matters
Bookkeeping and accounting are two parts of the same effort that, combined, form the foundation of your company’s financial viability and success.
What’s the difference between bookkeeping and accounting? In a nutshell, bookkeeping is collecting the data, accounting is using that data for strategy.
Bookkeeping is the day-to-day recordkeeping of every financial transaction that your company engages in.
This is the information that you use to create financial strategy. With your accountant, you can analyze the data and make informed decisions about what to do or not do with your company’s money.
How can you decide to make a big financial investment such as an onsite data management system (i.e., servers, processors and the people to run it) if you don’t know whether you have the money? You can’t.
Your books hold the data you need to make all of your strategic financial decisions. If you don’t have a good grasp of how money goes in and out of your books, and at what amounts, you can’t make informed decisions about your company’s finances and you can’t plan ahead.
– Brenda Sherrodd, Avitus Group Director of Accounting Services
Why Accounting Matters
It’s the job of an accountant to look at the numbers in your books, make sure they’re accurate, interpret them and recommend strategy based on what they show.
They do this through audits and the preparation of reports, which you can then analyze to understand your company’s financial situation.
Your accountant can show you trends in your accounting, provide you with forecasts of those finances and help you limit spending for better cash flow or plan for growth.
Remember that movie Moneyball? In the movie, a Major League Baseball manager uses data rather than simple observation and gut feeling to choose the players on his team.
It’s a true story. In 2002, Oakland Athletics manager Billy Beane was trying to field a competitive team on a limited budget in a sport dominated by teams with big budgets. He turned to data, and the team found success.
The more we’re able collect and analyze data, the more informed our strategic decisions are. That’s true for a Major League team and also true for your business, no matter the size.
Strategy Based on Data
Proper bookkeeping and good accounting can certainly help you avoid some of the pitfalls that many businesses – especially start-ups and small- to medium-sized businesses – fall into. But they can do much more than that.
Comprehensive, accurate bookkeeping coupled with informed, well-conceived accounting strategy can get your company off the ground, keep your company afloat and help it grow.