As a business owner, you’re among an elite group of go-getters. According to experts, the top two reasons people start their own business are 1) to be their own boss, and 2) to follow their passions. That sense of freedom, setting your own schedule, and gifting the world with your brilliant, unique business plan can be priceless. But confidently managing a business? Well, that requires some financial acumen, and a solid grasp of accounting.
Let’s be real: when many people hear the word "accounting", they mistakenly picture the fluorescent-washed face of a zombie-like office worker. But as a small business owner, you cannot afford to fall into the trap of thinking that accounting is boring, or an aspect of your business that’s easily forgotten about once you’ve hired a professional. On the contrary, knowledge of the day-to-day financial status of your business is instrumental to success. And if this knowledge is incomplete or underutilized? Well… financial mismanagement is one biggest reasons small businesses fail.
So whether you’re a business owner looking for the right accountant to help you analyze your financial situation, or simply an innovator with a dream, here’s why understanding this universal business language is paramount to your success.
Understanding accounting will help you keep your business afloat
As captain of your business ship, imagine setting out on a voyage without calculating what rations you’ll need, gathering your crew, and checking the weather. You know where you want to head, and the winds will get you there, right? Unfortunately, this kind of optimism is a pitfall many business owners tumble into. Only keeping track of the cargo you’re selling without taking all the other aspects of your business ship into consideration will likely cause you to sink. But a solid knowledge of accounting will give you a much-needed boost.
While understanding the technical terminology is helpful, at its core accounting comes down to this: having the financial information you need to stay in business, and thus sailing smoothly. And if you encounter unexpectedly rough weather (hi, 2020), you’ll need that knowledge just to survive. Even simply tracking how much you’re spending versus earning helps you see the bigger picture of how seaworthy your business is.
Accountants are also valuable forecasters, as they can help you track things that you may not have considered, and not only tell you what is, but also give you advice and insight into what could be.
Ultimately, understanding what your accountant is telling you hinges on your knowledge of accounting, not theirs. You can think of it this way: if your accountant tells you a storm is coming, but you have no idea how to adjust the sails in response, you still might capsize.
Understanding accounting will make tax season less painful (and reduce your audit risk)
Ah, taxes. Like death and spam callers, taxes are an unavoidable (and often unpleasant) part of running a small business. Not only is the process mind-numbing, but the result of doing your taxes wrong can be the stuff of nightmares. However, a consistent, methodical maintenance of your ledgers can smooth the process immeasurably.
Understanding accounting is an absolute must in regards to taxes. In the most extreme scenario, inaccurate tax records can lead to fines, audits, or even jail time. Do we have your attention yet? Luckily, when you understand the financial information you must track in order to report your income, end-of-year or end-of-quarter tax calculations go more smoothly and accurately. Not only will your accounting knowledge help you prepare the correct data, but it will make communicating with your accountant infinitely easier.
On the more positive side, diligent financial tracking will also ensure that you are paying exactly the right amount of taxes, and no more. There’s no medal for paying the government more than you need, and in fact, this money could be put to better use inside your business. Moreover, maintaining accurate books (with a little help from an accountant) can help you discover deductions you may not have been aware of, saving you money. Now that’s a reason to get excited about accounting.
Understanding accounting will help your business expand exponentially
Who doesn’t have dreams about seeing their business grow to the point where they can lay back, sipping fancy blended drinks on a beach, while their business chugs along profitably? If you’re hoping to add another product to your line, hire more employees, or expand to new physical locations, understanding accounting will help get you there.
In order to build up, expand, and set ambitious growth goals, a savvy business owner absolutely must understand their complete financial picture in addition to hiring a good accountant. Keeping accurate accounts of your business performance from month-to-month will let you know whether you’re on track, or if you need to pivot. Understanding your financial position will let you know when it’s time to set that next big goal, and whether or not you’ll be able to get financing. After all, bankers are much more likely to dish out loans to a business owner who has a firm grasp of their accounts, and understands the risks and rewards of aggressive financial maneuvering.
As a small business owner, you are your own boss. That means your business fails, or flourishes, because of your actions. But it also means the only limits to your ambitions for your business are the ones you set. An incomplete knowledge of accounting can place a limit on those dreams, blurring your vision for the future even if you have the best accountant on earth. However, as a business owner who knows what you’re doing, accounting knowledge will help fly you towards those white, sandy beaches of success.
Accounting for the future
Being a small business owner is challenging. You have responsibilities to yourself, your customers, and your employees. In difficult years like 2020, you may have been forced to make tough financial choices. Having enough information to make these smart, strategic decisions depends on having accurate, up-to-date, and transparent financial accounts that you (the boss), can confidently interpret. And if that sounds daunting, don’t worry! Know Your Numbers Accounting can help you get to that level.
When you understand accounting, you’ll be in a good position to keep your business running profitably, and poised to grow for a long time.