According to the Ministry of Labour, Draft Micro and Small Enterprise (MSE) Policy for 2013 to 2016, small and micro businesses represent more than 20,000 enterprises, with an estimated contribution to GDP of nearly 28% and employment of 200,000 persons.
From the moment you start your small business, however, the odds are pretty much stacked against you because most small businesses fail within the first 5 years. However, the major reason most businesses fail is because they aren’t able to keep up with the financial obligations required of them.
Cash flow problems and poor financial management has been identified as one of the major and recurring reasons small businesses fail. Considering the cash flow problems that most small business owners face, should you as a small business owner really be doing your own accounting?
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Should You Be Doing Your Own Accounting?
If the failure rate is this high, not hiring an Accountant sure plays an important role in the statistics. Indeed, almost half of all small business owners (45%) fail to hire an accountant.
Too many small business owners try to handle all matters on their own and neglect to hire an accountant. In truth, most business owners are only trying to cut what they perceive as unnecessary expense. But this later proves to be their greatest undoing.
When it comes to the problems and uncertainty of owning a business, consulting a professional accountant can often be the best solution. It is one that proves to save money in the long run.
This is no doubt why it is now trendy to have an accountant as one of the co-founder or partners of a business. For businesses not fortunate to have an accountant among their rank, hiring one is proving to be of high essence.
Whether you’re a start-up or an existing business, you should engage the services of an accountant. The decision to employ one may be the only thing that saves you from costly errors and keeps your business safe in the future. Hiring an accountant to look after your business is always a smart move. Here are 9 reasons why your business needs an accountant:
#1: To Select a Business Structure
When you’re just starting up, one of the biggest problems you’re going to face is deciding the right business structure for your venture. Deciding whether you should operate as a sole trader, partnership, limited liability company or some other form is a decision better reached with an Accountant. An Accountant can advise your business on which structure will be right for you base on its nature, size and complexity taking into consideration legal, tax and financial implications of one structure over the other ensuring you get off on the right foot.
#2: To Manage Your Cash Flow
Of course, you’re in business to make money. You’re however most likely not going to be making a whole lot if you don’t keep track of the money that comes in and out of your business.
You need someone to maintain the financial records or books for your small business. Among the dozens of things that this will do, it will importantly ensure that you keep an updated book. This is going to come in handy for reports, tax purposes, or future planning.
An accountant will also help you plan ahead to ensure you can continue paying suppliers, employees, and other bills even in periods when the cash flow is low.
#3: To Monitor/Reduce Your Tax Liabilities
Do you have some taxes you’re exempted from paying? How do you legally reduce your tax liabilities? Of course you already know that if a business fails to calculate and pay the correct amount of taxes owed to BIR, serious problems may arise.
Depending on your business and the structure you operate, there are a series of tax deadlines to beat every month of the year. Each deadline comes with corresponding fines and penalties for late filing or payment.
It is understandable that you have a business to run and that these deadlines might slip by you. This is one of the reasons you need an Accountant. Having your own accountant means you’ll file your taxes as and when they are due and avoid the last-minute rush.
What you definitely know is that Accountants can help make tax payments easier for you by keeping proper records for tax season. What you probably don’t know is that an Accountant may also help your business by finding loopholes to avoid paying heavy taxes.
#4: To Save Valuable Time
Running your business and doing the work of an accountant is extremely time consuming. If you think about how much time and effort you’ll spend trying to manage your finances yourself, perhaps you’ll have a rethink. Making use of an accountant will allow you to focus on the proper task of running your business and attaining your goals.
With someone else managing and balancing the books, you’ll have more time to do other core tasks like meeting customers, planning growth strategies for the business and formulating innovative ways to generate more sales.
#5: To Assist with Costing Products and Services
The price you charge your customers or clients will have a direct effect on the success of your business. One of the secrets to business success is pricing your products properly. But it is also a tricky thing to do.
Production costs cover direct labor, direct materials, consumable production supplies, and factory overhead. When you put the right price on your products or services, your profit margin will expand and you’ll create a solid foundation for your business.
If you get your pricing wrong or lower than your production cost, then you’re already on the path to failure. A large number of businesses fail because products and services are priced too low and the business owner (for lack of knowledge) has no idea about this.
But this shouldn’t be a problem for you if you have an accountant. With your accountant, you can be able to review your production cost and expenses. You can then use this to determine the best price to keep your business afloat.
An accountant will also help you review prices to reflect the dynamics of cost, market demand, response to the competition, or any other profit objectives.
#6: To Create Internal Procedures and Controls
For your business to run smoothly and successfully, you need these 6 (six) internal control procedures:
- Separation of duties
- Access controls
- Physical audits
- Standardized documentation
- Periodic reconciliations; and
- Approval authority.
Establishing effective accounting control procedures early in your small business helps to create a culture of ethical financial management. A skilled accountant knows these internal controls and procedures and will be helping you out in putting them to practice.
#7: To Acquire Credit Facilities with Your Bankers
When you wish to expand your business and take out a loan, you would need to show your credit worthiness. By all means, the banks would be interested in ascertaining that you are not a liability, and that loaning you the money would be a smart venture.
An accountant is what you need to get your papers in order. With your accounts in order, your accountant will be able to demonstrate the growth rate of your company, estimate future projections, validate assumptions and convince the financiers that you can easily pay them back their money, plus interest. Usually this involves your accountant preparing a three-way projection incorporating projected profit and loss, balance sheet and cash flow forecasts.
#8: To Help Innovate Your Business Model
A business plan requires specific projections of revenues and costs. A business model on the other hand does not. A business model requires that you become ingenious about the way you create, deliver and capture value for your business.
To do this, you would however have a need to constantly re-evaluate how you do things and run your business. Analysing the past accounting performance and history of your business is a great way to go about this. A breath of fresh ideas from your accountant may be all you need to keep your business afloat.
#9: To Help Grow Your Business
It is safe to assume that every business owner wants their business to grow and not end up as one of the statistics of failed ventures.
Your Accountant is going to make use of your financial data to provide a roadmap for the business and plan for the future. Among other benefits, this will help you determine the best time to purchase inventory and budget for big-ticket investments so that you can stay competitive and viable.
You’ll also be needing periodic advice, guidance and counsel on how to achieve your objectives and keep your business in business.
Considering these benefits, it’s little wonder why many business owners now partner with an Accountant for their startups. For businesses not fortunate enough to have an accountant as a founder or co-founder, it has become quite necessary to keep one on the payroll.
While you’re busy with the day-to-day operations of your business, you would greatly benefit from having an accountant that can put your account in order, keep an eye on your blind spots, and make sure that you remain afloat and able to achieve your business goals. Need an accountant to gain real-time financial insights into your business operation? Schedule your free consultation today and speak to one of our advisors.