A is for Accounting

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A is for Accounting

Do you want to be an A quality business?  If so, consider how well you keep your accounting records.

Accurate accounting records are a wonderful investment for your business.  As a small business owner, it may be intimidating to think about maintaining timely accounting records, but these accounting records will prove to be incredibly useful as your business progresses.

What are the advantages of accounting records?

One of the best and immediate advantages of proper accounting and financial statement preparation is being able to make informed decisions about your business.  The balance sheet will show you your liquidity, assets, and upcoming liabilities; the income statement will show how you are managing your current expenses, and the statement of cash flows will show you where you are generating and using cash.  When you correctly record your transactions in these financial statements, you will learn the levers to pull to make your business successful.

Financial statements do more than just enable better decision-making.  You can also use financial statements to demonstrate your financial position to others.  Your bankers will be able to review your financial statements to help them decide on how to lend you money; independent investors will gain comfort over your business and their investments; and your tax accountant will understand your business better when preparing your tax returns.  Your insurance company may also reduce your rates if it is comfortable with your financials.  Overall, keeping accurate accounting records helps your financial statement users gain better visibility into your operations.

If anyone is looking to join, purchase, or invest in your business, you can get them up to speed quickly by having them review the financial statements and, if needed, the underlying accounting records.  Financial statements provide a narrative of your business and help make your business comparable to others.

What are the disadvantages of accounting records and how can I minimize them?

Some business owners argue that preparing and maintaining accurate accounting records takes too much time as an administrative task, is expensive, and focuses too much on looking backward.

While accounting may feel administrative, it can have a direct impact on your bottom line if you can provide valuable assurance to your partners and investors.  If you plan your time for accounting for your business, you can manage the time commitment that it takes.  You can also outsource the preparation and maintenance of your accounting records if it still feels daunting.

Maintaining accounting records can be expensive depending on your approach.  To minimize costs, consider using software, seeking advice from resources like the Indiana Small Business Development Center (ISBDC), and asking CPAs for help based on the size of your business.  When you establish a high-quality accounting records process upfront, then you will spend less time maintaining it later.

Accounting records show a history of how your business has performed.  You can use that history to analyze trends and then create more accurate budgets, forecasts, and pro-forma financials for your future business.

Conclusion

Overall, you should consider the significant advantages of preparing and maintaining accurate accounting records and financial statements and then plan to implement them.  You will empower yourself with knowledge and instill confidence in others for your business.

Richard Pittelkow

Richard Pittelkow is a part-time Business Advisor at West Central ISBDC. He has been a consultant to start-up and expanding businesses since 1995 including serving as Interim Director, Center for Business Support and Economic Innovation at Indiana State University. Richard retired as Senior Vice President for Commercial Banking at Old National Bank, Evansville, Indiana – responsibilities included managing the portfolio growth of 110 commercial lenders. While in Danville, IL serving as President of a commodity processing company, he was Chairman of both the Danville Area United Way and Economic Development Corporation in addition to being very active on many other community boards. Richard holds a Bachelor’s degree in Finance from Marquette University.
Richard Pittelkow can be reached at rpittelkow@isbdc.org.
Posted in: Business Planning, Financial

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