Overlooked and branded as dull, accounting is critical to the ongoing success and development of any business. We take a look at why accounting is so important and the pitfalls avoided by understanding it.
Accounting is the process of documenting and assessing financial activity. From these figures, an accountant and financial experts can make financial forecasts for the company such as profit warnings and tax liabilities.
Accurate financial recording and understanding are critical to the success of a company and this is why:
Accurately track income and expenditure
Cashflow is the lifeblood of any business, therefore, monitoring income and expenditure is essential.
But it is more than that: it is about understanding what a company is spending money on and why.
An accountant should also be asking questions about why money is being spent on certain items and look to achieve better overheads.
Income needs to flow regularly into a business thus an accountant will usually pass information to credit control where invoices and other payments to the company or organisation are outstanding.
Profit and loss
When income is more than expenditure, a business is in profit. When expenditure is more than income, the business posts a loss.
There are times when a company will be expecting a loss. For example, an investment programme may mean that as well as investing any loans the company has access to, they may also invest profits.
Running at a loss may not necessarily be a bad thing in the short term, as long as the value of the business’s assets is more than the loss being incurred.
An accountant is the person who monitors and manages loss, as well as determines whether assets hold the value that a company needs.
Tax is a complex subject, especially the bigger the company.
Likewise, when posting a profit, a company or business will incur a tax liability. An accountant is a financial expert who will ensure that a business meets its tax liabilities.
However, there are times when a business’ tax liability becomes so complex, that a tax specialist works alongside the accountant to keep the tax bill as low as possible.
A business may have a small payroll that runs weekly or a large payroll that runs every month. Either way, it needs to be accurate!
It isn’t just about working out how much to pay individuals for hours worked. There are National Insurance contributions to calculate, as well as pension payments and so on.
It is also part of the accountant’s role to have an accurate idea of the financial shape the business is in.
This is known as a balance sheet. A snapshot of the business, it lists everything from assets to debts, money owed to the business.
This balance – how much is left once liabilities (e.g. money owed) have been subtracted from assets – will give the net worth of the company.
There are numerous reasons why this balance sheet is important – it gives information to creditors, as well as stakeholders for example – and is something that an accountant is expected to deliver and understand too.
Become a qualified accountant
These are just a few of the roles and responsibilities that a business accountant would fill.
The demand for accountants is high. Qualified accountants can be employed by a company or can be self-employed, offering their services on a freelance basis to companies, businesses and organisations of all sizes.
As well as specialising within the field of accountancy, many accountants also specialise in certain areas of industry or in some sectors.
Accountants are qualified, professional people. Some will follow the degree route whilst other people work their way through various courses, including online accounting courses, to acquire the skill set that they need to be an accountant.
Is this the career for you?
Accountancy hasn’t always enjoyed a great reputation. Until recently, accountancy was seen as dull and boring.
Modern accounting is no longer figures in long columns. Accountants often have to be technically minded too, using relatively complex accounting software.
Accounting is critical to the success of any business. The more an accountant understands the financial shape of a company, the more accurate this financial information he or she has to work with, the more accurate the appreciation of the business will be.
To move a business forward, everyone on the management team needs to understand a range of complex financial issues, and you, as an accountant, could be the very person that explains the details.