Ofin - Importance of Accounting for a Business
Importance of Accounting

Importance of Accounting for a Business

Most of the Business Consultants, Management Consultants or even Business Owners consider Production, Marketing, Servicing and Finance as core areas of business. In my 25+ years of being an Accountant I have hardly heard anyone saying that Accounting it the backbone of any business.

Being in the Accounting Services profession for more than 25 years, I can tell you that Accounting is the most important part of any business. And I am not saying this because I am an accountant. I have some solid points to prove my statement.

With the advent of computers, accounting software and other applications around, accounting has evolved to a great extent. It is now the most important and reliable source of Management Information System (MIS). Accounting is not just keeping track of some historical transactions but it is the most important functionality to counter this competitive world.

Here are some things which can be done with the help of proper accounting system:

1.      Decision Making

Properly managed accounts can help businesses to take informed decisions about their purchases, expansions, expenses etc. With the help of accurate accounting the businesses can take fast and correct business decisions.

2.      Accounts Receivables

List of Accounts receivables or Debtors is the most important in any small business. If you do not recover your receivables on time, you end up paying some extra interest on your credit facilities from your bank. Late recoveries may also end up in making late payments of taxes, salaries and creditors.

3.      Inventory Management

A good accounting system allows you to track your inventory positions. Timely orders of raw materials or traded goods and sales booking can ensure that you never run out of inventory nor do you have excess investment in inventory. Physical stock taking on regular intervals will help in finding the gaps in inventory management.

4.      Costing

Business is not just making sales and calculating gross margins. There are many other costs involved in business and a properly managed accounting system can give you inputs about your service cost, marketing cost and other areas where you can save money by curtailing unnecessary expenses.

5.      Profitability analysis

Profitability of different products can be analyzed with the help of accounting reports. Periodic comparisons of profitability and performance analysis of team members can also be done with the help of structured accounting reports.

6.      Compliances

All legal compliances depend on the accounting report be it GST filing, TDS filing, Income Tax filing or MCA filings. Accurate and timely accounting can help you to file your legal compliances on time and save lot of money on late fee, penalties and incorrect filings.

7.      Identifying weaker areas

A good accounting system can help you to identify the weaker areas of business like analysis of slow moving inventory, huge interest costs, late payments to creditors resulting in costly purchases, late collection of invoices etc.

8.      Identifying non profitable activities

With the help of accounting reports you can identify the non profitable activities or areas of your business. For example you can have sales report where you get to know which product, sales person, territory or sales agency is performing above par and which one is below par. You can then make your business decisions based on their performance.

9.      Prevention or detection of frauds

With little detailed reports and some good expertise in accounting you can keep a check on misappropriation of funds, cash, inventory, assets, sales proceeds etc.

10. Settlement of Accounts between owners

It is a good practice to settle the accounts of owners periodically. Settling accounts of owners will make sure that the owners are not overdrawing the funds and the partners are drawing as per agreed limits. Settlement of accounts of incoming or outgoing partners may also be required. Periodic settling of accounts reduces the chances of disputes between partners.

With implementation of a few good practices in your business accounting all of the above objectives can be can be achieved. Here are some good accounting practices for small businesses:

1.      Regular or real time update of your
accounts

All the business transactions should be recorded immediately. When you are taking services of outsourced accounting services companies like Ofin, make sure that you provide all basic data regularly.

2.      Preparing accounting master

Make sure that you have your vendor / client registration system in place. Collect all required information of your vendor / client before having first transaction with them. This can save lot of time in accounts maintenance and compliances.

3.      Providing clear instructions to
outsourced accounting team

Make sure that you provide correct and full information of transactions to your accounting team so that correct accounting treatment can be given.

4.      Regular reporting

The data entry errors can be corrected through regular reporting. We at Ofin prepare balance sheet of all our clients every month. This helps the clients to analyse their monthly progress and we make sure that the entries are corrected in case of some errors.

5.      Adhering to the accounting system

Make sure that every department of your organization coordinates with the accounting team and provides all the information as may be expected from them. In fact it will not be exaggerating to advise that make your accounting team the nucleus of your organization and everything revolves around it.

Remember maintenance of accounts is not costly but non maintenance of accounts will definitely cost a lot to the business. Never keep backlog accounts, always keep your accounts updated to current date.

Click here to schedule a 30 minutes free consultation on accounting of your business.

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