Reuters reported that at the start of 2020, experts expected unbridled economic growth. This positive outlook turned sour as Covid-19 became an unmitigated disaster. Small businesses were one of the worst hit by the recession. The government’s financial aid kept them afloat.
Entrepreneurs are looking for ways to maximize productivity while keeping costs low. They are getting rid of the unnecessary. Recognizing which expenses are essential and which are extravagant is an easy task. Unfortunately, this exercise is not straightforward.
Managers often make the mistake of thinking that accounting service is non-essential. After all, you can set up automated accounting systems. Before you cut this off, you should take a closer look at this article.
Purchasing accounting software makes your bookkeeper redundant. You, yourself, can do the work. But you may miss minute details. A good example would be the effective date of the transaction.
Let us say that you have filed the paperwork in SBA for the incorporation of your business. The effective date is within 30 days. It means that the company cannot transact any business yet. Your accountant understands this and will not do anything to undermine this.
On the other hand, you may have agreed to carry out works with customers beforehand. In this situation, you might unwittingly have recorded the transaction on the date that you received cash. Doing this will create unnecessary issues when tax season comes.
The automation of your accounting process makes human intervention unnecessary. It lessens your exposure to theft. But this is not necessarily true.
You are also at risk of the physical theft of your inventory. If such a crime occurs, you may not immediately detect it. Hapless business owners usually discover the breach during their annual audits.
Your accountant can prevent this from happening. You can ask them to determine the internal risks. Once they identify these threats, they can develop internal controls. They will continue monitoring the processes that they have set up. If the system failed, your accountant would establish a new one.
The crime prevention process that they have set up will save you a lot of money. It will also make your operations more efficient.
Your accountant learned that accuracy is part of the accounting framework. They understand the importance of using the accrual basis of accounting and not a cash basis. The former will ensure that your financial statements are accurate.
For example, you run a janitorial service business. You agreed that your team would clean the premises of another entity for three years. Let us say that your client paid you upfront. You might make the mistake of reporting the cash receipt as sales. Doing this means that your liability is understated, and your revenue is overstated.
This erroneous journal entry means that your income tax is higher than it should be. If the cash transaction was correctly reported, you would only recognize one year’s worth of income. The mistake will affect your liquidity.
On the day that the contract is signed, your accountant will report the transaction as unearned income. At the end of the calendar year, they will make reconciling journal entries. They will reverse a portion of the unearned income to earned revenue.
Would you rather spend your time on your operations? Or perhaps, you can use your time to train more employees. Employing the help of an accountant will give you the freedom to focus on the nitty-gritty of your business.
You will be working as a team. Your accountant will implement the internal controls that they have developed. You will focus your energy on manufacturing. Although your paths will cross in one way or another, they will work on their end to ensure a seamless process.
This coordination will ensure efficiency. Let us take the physical receipt of the raw materials. Their established internal control might include two individuals. One will receive the inventories while someone else will report the receipt in your system.
They might be one of the people handling this transaction. This scheme can be implemented without your intervention. It also lessens the risk of theft.
You must strategically budget your funds. Unwittingly cutting off necessary services will only cripple your business. You may not immediately lose money. But it may lead to financial ruin.
Your accountant can help you methodically plan your business operations. Their training in operations management will help you run your company efficiently. Their knowledge of GAAP will ensure that your financial statements are following the rules set by IRS.