To the naked eye, accounting might appear as nothing more than punching numbers and glorified data entry. Not quite. The profession goes far beyond listing credits and debts. It is an extension of the business language and therefore intimately connected to all things financial.
So how can this language of numbers translate to real-world solutions for your business?
We have some suggestions.
The Ancient Roots of the Art and Practice of Accounting
First, let’s look at the role of accounting and bookkeeping throughout history. Accounting was born as soon as trading and barter began. Records of goods traded and received was a form of early record-keeping that became necessary for merchants and traders alike. Early ledgers described the type of trade that occurred between two parties and served as an official record if disputes arose.
It was clear early on that record-keeping was an essential part of doing business. It was fundamental to keeping track of transactions, profits, losses, and inventory.
Monks in the 15th century made a lot of progress with improving the bookkeeping process and laid the groundwork for modern accounting. Soon the concept of the balance sheet and the careful handling of profits and losses became integral to a business person’s success. Keeping track of credits and debits became another necessary function of growing economies.
Then, accounting made its way to America. With the advent of railroads and industry, the exchange of goods required complex distribution networks, schedules, and competition. People had to make sure that these overlapping processes were conducted in the most efficient way possible. This growth and necessity for precise record-keeping and strategizing turned traditional recordkeeping into modern accounting.
Why does any of this matter?
Accounting grew organically as a necessity to conduct and improve business. Therefore, the processes involved—advanced as they are today with sophisticated software and automated systems—fulfill a fundamental role that allows a business person to view the big picture of their enterprise and assess decisions, risks and losses in the most accurate and efficient way possible. This is especially true with a tax code known for its complexity.
Rebuilding Your Business Post Covid
This brings us to the small business landscape post-covid. Every small business owner had to make adjustments. Today, business owners are preoccupied with getting things rolling again.
Here are some tips for your comeback.
Assess the Damage in Financial and Practical Terms
The best way to move forward is to understand your position. If you haven’t already, update financial statements, review profits and loss cash flow statements, and carefully compare them to where you were a year ago. The numbers won’t lie and guesswork is not enough to give you a clear picture. Your trusted CPA can help you review your financial statements and deduce helpful conclusions.
In what other ways has your business been affected? This may include laid-off workers, slashed expenditures in marketing or advertising, loss of revenue, change in staff structure or management, etc. All of these factors will also affect how you conduct business moving forward and the decisions you must make right away.
Create a Budget and Adjust Your Business Plan
Many business plans will have to go through some re-designing, as the nature of how we do business changes as well. This is a good time to review your original business plan and consider innovative ways that you might readjust to the new paradigm.
As you make changes to your business, consider adhering to a budget that takes new expenditures into account. For many small businesses, there will be an initial output of cash to retrain employees, implement new platforms, improve infrastructure or materials, and this means proceeding with caution and deliberate attention to every penny spent.
Use Your Accountant as a Way Towards Forward-Thinking & Growth
Working with CPA is not just about filing your business taxes. Through tax planning and tax strategies, a tax professional presents you with data that is useful for growing and strengthening your business. That said, finding a CPA that understands your business requires working with experts that know about your industry and understand its nuances.
- Understand your cash flow. You know how important this is to understand the health of your business. An accountant helps you create and maintain cash flow statements. This provides a detailed picture of money flowing in and expenses going out. Having accurate data improves decision-making. A study by Fundera claimed that 82% of businesses that failed attributed it to cash flow problems.
- Stay on top of cash compliance. Small businesses cite tax compliance as one of the most stressful aspects of their business. Unfortunately, it can take a lot of time and resources that are better spent growing the business. Your CPA can help you with tax compliance issues and questions.
- Tax planning. Filing your small business taxes is a lot more involved than simply meeting the deadline. Smart filing is about reducing tax liability and doing so while maintaining full tax compliance. As Merrill Lynch suggests, as you get an idea of your business outlook for the next year, the more informed you are about your business ideas, the better chances of avoiding cash flow interruptions.
- Take advantage of deductions. Because the tax code is exceedingly complex, small business owners often miss out on deductions that apply to them. The only way to ensure you’re maximizing tax opportunities is by working with a tax professional that guides you through changes.
Strategize, Maximize, and Stay On Top of Your Business Growth
The numbers tell a story that doesn’t lie. That story can help you make the right decisions about investing in new equipment, hiring, holding off spending, or simply keeping track of your growth. Good strategies are built on data and here’s how your accountant and bookkeeper can help.
Want to learn more about how a CPA can help your business get back on track? Call Sovereign CPA and learn more.