One of the most essential partnerships is that between accounting and management. Without a proper accounting and bookkeeping process, the financial data being provided cannot be held as reliable. This is especially problematic not only for reporting, but also for management’s inability to make key long-term decisions. In the early stages it’s easy for ownership to put bookkeeping as a lower priority in favor of sales, client service or new product development. As a company grows, accurate reporting becomes more and more important . To help you understand why effective accounting and bookkeeping should demand their time and attention, we have outlined key areas impacted.
- Cash Flow Management. Accurate bookkeeping records are needed to analyze the overall financial state of a business. Without up-to-date records, management is not able to understand how much profit was earned or losses incurred. These records also provide insight into whether a company is growing, stagnant or declining. This information is essential in evaluating the overall business, as well as its potential to meet financial goals. When management has a firm grasp on the performance, they are able to strategize and make appropriate adjustments as needed.
- Day to Day Management. Recording day-to-day financial details will help keep track of vital data needed to run multiple areas of the business. For instance, a quick glance at a report from a well-run bookkeeping process will reveal how much money is owed and from which customers – along with any overdue accounts. Management will also be able to keep up on business expenses and deadlines for things such as loan payments, rent, taxes and standard monthly bills. This can save or reduce costly fees and other penalties.
- Guide Financial Decisions. Having access to proper bookkeeping data helps the business plan and helps management make financial decisions with clarity and perspective. Forecasting business needs ahead of time and planning for purchases and other miscellaneous business expenses will become easier with the right financial information. Management will have access to the data needed to set projections, budgets and goals for the business, make necessary short- or long-term adjustments – such as increasing the price of certain products or services or cutting expenses to offset a lack of profit in a particular business niche, put more resources and effort into a growing service, or plan for an additional hire.
- Business Loan Application. If management is interested in taking out a loan or some other form of bank financing, the bank will require financial data to prove that the business is in good economic standing and able to pay back the loan. Banks typically want to see copies of statements, cash flow budgets, projections and other applicable financial data. An effective bookkeeping process will make it much easier to generate the needed report when requested.
Ensuring a smooth accounting and bookkeeping process is essential to having critical financial data when needed – for both internal and external reasons. This is important not only for compliance, but also for strategic decision making. If you need assistance with your accounting or bookkeeping needs, Smith Schafer wants to help. Click here to start a conversation.