Most business owners in America are unaware that about 80% of companies fail within the first three years. Typically, this is because these businesses mismanage their cash. That being said, having strong accounting skills will help your small business prosper by giving you information about your company’s financial health, assisting you in finding development prospects, and providing precise, accurate cash flow reports.
Doing so will also help you be more organized when submitting business taxes, which is extremely important to flourish as an entrepreneur or small business owner.Of course, you can always hire an accounting professional to handle business finances, prepare financial documents, and manage all business finances. But won’t it be better if you could learn a thing or two about finance?
While the former will allow you to remove the guesswork out of accounting, the latter will help you save a lot of money on hiring and paying an accountant’s salary. Remember, you don’t have to be a finance expert to thrive as an entrepreneur.
With that in mind, here are a few reasons why accounting skills are crucial for entrepreneurs, especially if they want to grow their business into a powerhouse!
1. It Will Allow You to Have Financial Stability
You will clearly understand how much money enters and leaves your company when your accounting and finances are in order. In fact, you’ll be able to make more precise predictions for your expenses and income in the future, guaranteeing that you’ll have enough cash on hand to keep your company afloat during difficult financial times.
Therefore, whether you take a quick accounting course orenroll in an online masters in accounting no GMAT required degree program, you will be able to offer your consumers an excellent and consistent experience when your business is financially stable.
Additionally, you won’t need to make budget cuts due to having less money on hand, preventing a decline in workplace efficiency and avoiding layoffs.
2. It Will Help You Manage Business Taxes Without Any Problems
While all business owners must pay taxes, don’t forget that your company’s tax obligations depend on your chosen legal structure. For instance, most of the time, self-employed and independent contractors can claim their income on a personal tax return.
Consider having taxes deducted from your income if you are self-employed because you must pay your own taxes, not your company’s. Because of this, understanding some fundamental accounting skills will help you choose the right business structure for your company and make tax filing much simpler for you.
That said, there are three primary business structures you can choose from. These include general partnership, C-corporation, and sole proprietorship. So, once you’re equipped with the necessary accounting skills and knowledge, you’ll know which one will work best for your company.
3. It Will Allow You to Create Financial Reports More Accurately
For entrepreneurs to make more informed financial decisions, accurate financial reports are essential. In fact,you will frequently make difficult financial decisions, such as investing in expensive business equipment, providing customers with specialized goods or services, or hiring independent contractors to lighten your staff’s workload.
However, the three accounting reports mentioned below will simplify the decision-making process.
- Cash Flow Statement
This report lists your company’s financial transactions, from money coming in (cash from customers) to money going out (staff salaries, rent, utility bills, etc.)
- Profit and Loss Statement
You can use this report to calculate your company’s overall costs and revenue over a specific period.
- Balance Sheet
Knowing what your company owes during a specific time period will be possible if you know how to read your company’s balance sheets. In other words, it gives you the low down of your company’s financial situation throughout a particular time frame.
According to the US Bank, 82% of all companies fail because of cash flow problems. However, when you master accounting basics, you can utilize these reports and statements to make more informed financial decisions and take your company to the next level.
4. It Will Help You Learn Bookkeeping Basics
Making the most money possible is one of the objectives of any small business owner. So, bookkeeping skills go a long way to achieving this goal. In fact, to successfully manage your business’s financial activities, including payments, income, accounts receivable, and everything in between, bookkeeping skills are a must.
Many small business owners and entrepreneurs typically feel intimidated by the word “bookkeeping.” But that shouldn’t be the case at all. Ultimately, bookkeeping is all about understanding how your expenses and earnings differ.
Accurate bookkeeping makes it easier to file taxes and enables you to determine whether your business is profitable or at risk of going bankrupt. Therefore, consider learning some fundamental financial and accounting concepts today to make bookkeeping much simpler for you, especially if you plan to handle your company’s bookkeeping activities on your own.
5. It Will Help You Become More Efficient
It is a no-brainer that having strong accounting and financial skills ensures that you stay current on your company’s financial information. It will enable you to decide more wisely about business investments.
What if you want to invest in new office machinery to increase employee productivity? Or perhaps you want to invest in business process automation technologies to boost productivity?If you have the necessary accounting and financial expertise, you can prepare a feasibility report that will tell you whether such business investments will be profitable in the long term.
Ultimately, a solid understanding of finance and accounting will help you determine where and when to spend money and how your business investments will affect your company’s cash flow.
At the end of the day, as your company expands and your services/ products change, so do your financial obligations. Due to this, the accounting strategies you initially used might not be as successful over time.
So, invest some time honing your accounting skills as your business grows. Additionally, consider the effect the time spent on accomplishing this will have on your business. Last but not least, if managing the financial requirements of your business isn’t your strong suit, think about employing a qualified accountant to make things simpler for you!