Good record keeping in your business is essential for its success, it shows how well the business is doing, whether targets are being met and whether the business is over spending anywhere.
It is important that records are kept up to date regularly, ideally on a daily basis. This helps to maintain control over what is going on and efficiently monitor activity, as the accounts are being looked at constantly.
Many people use accounts for different reasons, some of them are:
Managers, who use them to make informed decisions, make sure the business is making enough money to pay for wages, bills, stock and other demands. They need to make sure there is money saved for a rainy day.
Employees can use accounts to see how well the business is doing in regards to the security of their employment.
Owners and investors will use it to compare to different companies and think about whether they could put away excess money that isn’t being used.
Suppliers can look at whether the business has enough money to pay for the materials they want to buy and whether it’s a good idea to have a contract with them.
The government will want to know if the business meet legal requirements and are paying their taxes.
Competitors will want to compare their performance to their rivals and also learn from their strengths and what they are doing right.
Accounting looks at the money and assets within in the business, it shows what is going in what is coming out, what is owed and what the business owes to other businesses. There is a great deal of information that can be learnt from accounts, including how the business can increase its sales, profit and how they could save money.
Accounts are also used to make cash flow projections and show potential investors how well the business is doing and whether it’s on the track to success and how good or bad it has done in previous years and whether they have developed or made progress.
There are two types of accounting, financial accounting and management accounting.
Financial accounting provides historic information about the business performance over a specific time period. This is for external users, including potential investors, shareholders, bank, suppliers and the government.
This includes the preparation of financial reports that include a balance sheet, which shows the businesses assets and their liabilities at a specific point in time and income statement, which show the profits or losses, expenses over a certain period of time
Management accounting focuses on information that is used internally; it is used by managers to improve decisions for the future of a business. This type of accounting will require monthly or weekly reports, these help make better informed decisions.
Conclusion
Accounts help businesses stay organised, on track to success and prevent cash flow problems as long as they are regularly monitored and managed properly.