Without an accountant, your business would be blind to its day-to-day operations and never understand the bigger picture. The purpose of all businesses establishing an accounting department is to see how accounting information explains how the business achieves profits or losses, providing clues about where your company is succeeding and failing.
It also provides you with digital tools to collect the money your customers owe you and pay off your financial obligations to employees, tax authorities, and suppliers.
You need to identify the tasks your accounting system needs to fulfill; this will greatly assist you in managing your business. Here is a detailed guide.
1. Ensure the business's cash flow.
Your accounting department ensures you have sufficient cash to operate by tracking and reminding customers of amounts they owe and when payments are due. It also tracks payments you owe to suppliers, service providers, and other vendors and keeps these payments up-to-date.
The accounting department monitors these payments to ensure there is sufficient cash in your account from customer payments for your business to pay its bills.
2. Ensure cash flow for salaries and benefits.
Your employees keep your business running, and you have a moral, legal, and financial obligation to pay them fair and timely wages. Your accounting department calculates total payroll as well as deductions for income tax, social security, health insurance, unemployment insurance, and other contributions.
Payroll accounting also involves tracking tax deductions and total payroll costs over time, allowing you to assess whether payroll costs are appropriate for your industry or whether you need to evaluate efficiency.
3. Taxes
Your business is required to pay value-added tax, corporate income tax, and personal income tax periodically to the local tax authority. Your accounting department is responsible for gathering and organizing the necessary information to fill out these tax forms, including payroll information, sales figures, and operating expense data to calculate net income (taxable profit).
Accountants track your tax obligations over time and ensure that your business has sufficient funds to pay its obligations.
4. Provides a basis for business strategy development.
The numbers compiled by your accounting department can provide insight into which aspects of your business are most profitable and which operating costs are excessive. This information can help you decide whether to focus on a particular business activity, such as wholesale or retail, or it can spur you to experiment with new approaches, such as introducing new products that expand your strengths.
Accounting also tells you whether your cash flow is sufficient to implement the changes you are planning.
5. Provides opportunities for business expansion (M&A)
A good accounting system provides reliable financial information to a company's shareholders, showing the current figures on revenue, profits, assets, and business expansion potential.
See more: 4 steps to setting up an accounting system
Accounting systems provide key metrics for investment decisions, such as: earnings per share, return on sales, return on capital invested, and return on investment assets.
Accounting provides you with a "certificate" of your business's financial health and opens up many opportunities for expansion and collaboration.