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5 Min. Read

Accounting and Finance: Why Is It Important to Your Business?

The key to your business lies within the accounting, finance and understanding of the numbers of your company.

Accounting and finance refer to the recording and analyzing of business activities. Understanding where your incoming and outcoming cashflow will help you make better decisions moving forward to avoid failure.

This article will cover:
What Is the Purpose of Accounting and Finances in Business?
Why Is Accounting so Important to a Business?
What Is the Role of Accounting in Business?

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

What Is the Purpose of Accounting and Finance in Business?

Accounting and finance management is so important when navigating your business.

If you don’t know where your money is going and coming from, there is a very good chance you could lose control of your business. When businesses manage their income and expenses there is a stronger potential for growth. Plus, there’s better access to strategies that can help companies survive unexpected financial downturns.

Here’s how accounting and finances impact your business management.

Keep Financial Records

Accounting is essentially a record of a company’s financial activities.

A company’s ledger is where accountants and small business owners can track the income and expenses of a business’ daily operations. An accurate record of a company’s finances can help a business manage their financial future and understand the cash flow.

2) Avoid Legal Problems

Keeping an accurate financial record helps follow important business laws. Overlooking a minor detail could have major implications on your tax management.

Financial managers need to understand what expenses to deduct, how much taxes to pay and when to pay those taxes. Poor financial recording could lead to your company being audited and could land you in unnecessary legal trouble.

Additionally, an oversight in finances improvements to your facility could mean that you’re not following the regulation of safety laws.

3) Make a Budget

Using your financial records and understanding your cash flow can help you create a budget and budget is what keeps your business on track. A budget gives you a current view of your financial standing and helps you navigate your business towards future growth and development.

When creating a budget net income, expenses, goals and anticipating unexpected adjustments must be considered. Staying on top of these numbers is essential to managing your business, so it is important to continually keep checking in on your initial plan and adjust as you go.
Good accounting sets up a blueprint for the management of your business and offers a solid foundation for stability and success.

4) Analyzing Performance

Successful business owners are always checking in to see how their business is doing.

A company can assess their financial position by looking at their historical and current records of liabilities and assets and other financial records. A business owner can use this information to gauge how the company is doing.

These records are an opportunity to learn from past mistakes and make more informed decisions about planning for a more lucrative future. Knowing your current financial standing can also help you identify new areas of growth that help you achieve your bottom line.

5) External Communication

The communication of financial information is important when dealing with external parties.

Clear accounting and finance management can be useful when getting a loan from a bank or attracting potential investors.

Good financial management makes it easier for you to provide financial statements to external stakeholders. External users will assess these reports to decide how to proceed with their involvement with your business.

6) Internal Communication

Financial reporting can also help business owners communicate information to internal stakeholders.

This information might be relevant to employees who are interested in profit-sharing and stock-based compensation. This records also allow owners to communicate the strengths and weakness of their business with their teams.

Allowing your team to know your financial standing can tie with a bonus structure that can be used as a productivity incentive.

7) Developing Strategy

Good accounting and finance management inevitably leads to a good strategy. Once you’ve developed a budget and thoroughly analyzed your data, it should be easier to have a better understanding to develop a strategy to achieve your bottom line.

After reviewing your financial records, you will be more empowered to make informed financial decisions on everything from staffing to supply management. Your budget is your map to your strategy and strategy is your key to profitability.

Why Is Accounting so Important to a Business?

Accounting is an important function of a small business and often is referred to as the “Language of Business”.

The financial recording, summarizing, analyzing and recording of financial transactions help owners, managers and investors evaluate a company’s financial health. Knowing this information helps inform more strategic business decisions.

What Is the Role of Accounting in Business?

Accounting is essential to keep track of a business’ activities.

Allocating the business costs to goods or services, creating a budget for business functions and preparing financial reporting for business decisions are all aspects of accounting. Reports can be tailored to inform specific financial management strategies for individual sectors of your business.


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