Updated at 24/05/2023 - 10:47 am
When you keep the financial information of your business in mind, you are shooting yourself in the foot. After spending a lot of time and energy ensuring success, the lack of proper accounting habits can cause your business to fail or lame. Good accounting records are like the dashboard on your car – they give you the information you need to make business decisions and plans. With the right information, you can navigate your way to a successful and profitable business.
The lack of interest in accounting is one of the main reasons why small and medium-sized businesses fail.
These are the 5 factors that make business people and business managers need to know accounting skills #
1. Accounting for shareholders and investors #
The purpose of accounting is to keep track of financial data for your business. By entering these transactions into the accounting system, you have a record of what went wrong for your business. The lack of good accounting practices can make it difficult to sell your business or attract investors. An investor or buyer will want to see your accounting records to get a financial picture of your business.
Without correct accounting practices, interested buyers or investors may lose confidence in your business.
2. Accounting for tax, financial and investment management agencies #
All enterprises are under the management of state management agencies in charge of tax, finance and investment. Although economic transactions are financial in nature, each transaction is carried out in relation to a deep legal context. For example, how is a transaction recorded as a sale transaction, assuming you have delivered the goods but have not yet collected the money, what type of transaction is this? Determining the type of transaction determines how it is recorded in the accounting system, and therefore determines the reported outcome and all subsequent information derived from it.
You must have sufficient accounting skills to properly apply your business transactions, and know how to organize the appropriate accounting apparatus for your business, thereby ensuring that your responsibilities are fulfilled. your relationship with the state regulatory agency.
3. Evaluation of Banks and Creditors #
If you run a manufacturing business and you need a source of materials on credit, the supplier will want to see proof that you can pay your bills on time. If you don't keep good financial records, you won't be able to show them that you can pay your bills and you will lose your ability to mobilize credit.
Banks pay special attention to your financial statements, both to assess the profitability and efficiency of loan use and to meet the credit risk management regulations of the State Bank. If you cannot provide your financial records in a complete and timely manner, your financial management skills do not meet the requirements of the bank, the possibility of your business being granted credit is very low.
4. Evaluation of Marketing and Advertising activities #
As a business owner, financial statements give you an overview of your business. These periodic reports allow you to capture the pace of your business after a business cycle to see if your business is doing well or not. For example, if you need to gauge the success of a marketing or advertising campaign, you can review your accounting records to see how well your business has performed over that period. .
Without the correct record or accounting skills, you won't be able to understand the impact of your marketing efforts.
5. Increase productivity #
Accounting and finance activities make up the majority of your business' intra- and inter-departmental transactions. It can directly increase or decrease the productivity of individual departments and businesses as a whole. For example, all workers at your construction site have to take time off to wait for materials to be delivered for construction, this depends on your payment system. Too much finance or too little finance makes the department inefficient.
Productivity is also relevant in terms of where you decide to invest in your company, which depends on the financial data related to each department.
6. Business analysis #
Accounting data can be used to look at your business moves from different angles. You can analyze employee costs, product profitability, and learn the cyclical business income stream for budgets and business plans. Accounting reports can tell you where a particular product can make a loss. You may discover that the raw materials used to make your product cost more than you expected. Knowing this, you can choose to find a new supplier or decide to remove the product altogether.
Accurate reports help you make decisions that can improve your business.