Some small business owners go as far as to doubt the need for accounting. Others consider accountants as a “necessary evil” to be called in only at tax time. Both could not be farther from the truth. If your business has more than 10 sales per month, and you plan to grow you need an accountant, or an accounting firm to take care of your accounting needs. Here is why:
Accountants, Number-Crunchers And Financial Consultants
First of all, it is important to differentiate. Are we speaking about true professional accountants or just number-crunchers? If you have summoned an accountant to prepare your tax return only, you may have landed on a number-cruncher. Many micro-businesses owners actually crunch the numbers themselves. This is probably what people had in mind when they coined the term “necessary evil”.
Sometimes number-crunching just is not enough. If your business:
- Has a lot of expenses and/or income to manage;
- Earns more than AUD 200.000 annually;
- Plan to someday sell your business or leave it to the kids;
- Plan to take a business loan;
- Owns rental property;
- Active in investments.
You will do your best to hire an accountant. Financial data management is part of the accountant’s job. Also, you can prefer Service charge accounts that are used by property management companies. Any business owner needs to hire an accountant or outsource her accounting prior to the moment when data collection, data management and data analysis become overwhelming.
Accountants will handle creating data management procedures. They will handle all incoming data. They will handle the whole bookkeeping and reporting. They will take care of audits and banking activities. But what is most useful is that based on all of this structured information they are capable of providing some very useful advice to you as a business owner.
Sure, tax returns should be done and taxes paid and accountants are responsible for this. However, accounting is much more than taxes. Business accountants are trained in economics, math, statistics, and of course – accounting and taxes. They can see the picture behind the numbers. They will catch trends and warning signals. They can provide invaluable information and advice just by reading the numbers. If you are not getting such a consultation, you are missing out.
The sea of numbers generated by your business is used by the tax authorities to establish your tax obligations. Accountants prepare all the financial reports necessary. However, it is very useful if you also look at them and understand the story they have to tell:
This is the “Profit and Loss” report. It summarizes the data from all your sales and all expenses incurred to make them. All these are then cancelled out to reach a profit or a loss. This report will disclose whether your business is making money or losing it.
● Balance Sheet
This is the report about the assets and liabilities of your business. These are usually two very dynamic things. Businesses have plants, real estate, materials, production, bank accounts that have been purchased with the capital of the company, or with credits, or with pending payments from clients. Businesses have accounts to pay, that change daily. They have receivables from clients which change with each sale. All of this is handled by this important report.
Some financial reports are not mandatory (meaning that no one is going to request them from you). However, they may be truly useful. Such a report is the Budget. You and your accountant can draft the budget for next year. As for that matter, you can draft the company budget for the next five years. What the budget dues are forecast your P&L for the future. Having a budget will keep you in the know about how much your business needs to produce, market and sell annually, monthly, and if necessary – daily. Having such information in advance is invaluable, as you now know what is needed to keep your business profitable and can react fast when revenue or expenses are not going according to the plan/budget. Such insights can actually save your business.
Financial reports will also be required by your bank. It is highly advisable that you know what is in them prior to handing them over to your bankers.
Normal citizens are not required to keep financial records and have bookkeeping. However, businesses are required to do just that. These obligations are set in an array of laws and regulations. Needless to say that each business must strictly adhere to such requirements. What must be mentioned is that these regulations change from time to time. They change because times change. They change due to governments wanting to stimulate some part of the economy. They change due to unusual circumstances (like a pandemic).
Small business accountants have their hand on the pulse of business legislation, regulation and requirements. More so, they closely follow all changes to the legal framework. Actually, they are also aware of upcoming changes, which may influence your business.
Part of the accountant’s job is to ensure full legal and regulatory compliance of the businesses of their employment. This of course makes the business fully legitimate. But it may also save lots of money, which may be fined if all of the rules are not strictly followed.
This is probably the best reason to hire an accountant – they may actually save you money!
Small business tax accountants are knowledgeable on the tax legislation and all of its current and upcoming changes. Without wanting to intimidate you – have a look at the list of current tax changes and their implications as listed by the Australian Taxation Office.
This knowledge is not just for preparing your tax return. This knowledge is necessary to ensure the best possible tax treatment of your business. They can help you save taxes on investments, apply for COVID support, or benefit from small business concessions. This list is long, but no business can afford to miss out.
Now you have a pretty good idea of the key role which accountants in Melbournehave in running a business. Understanding their usefulness to the business and its management is important in order to utilise to the best their extended knowledge. Following the entrepreneur himself, it is in their capacity to make or break a business.