First up, you need to know that what is accounting?
Accounting actually stands for a practice wherein people maintain a systematic record. This maintenance of records is with regard to the finances of the company. This is what helps each enterprise to make their own financial statements at the end of each month of whenever they feel it is needed and suited to them.
Now, let’s get into why accounting is important for your business.
• Loans: Loans are basically sums that you borrow from the bank or any money lender under the deal and agreement that you will return it within a certain amount of time, along with the rate of interest that is charged. In case you fail to return this sum, your property or any other item will be taken away which must be equal to the amount of sum borrowed. But, what do you need to take the loan in the first place? It is this accounting record. Until and unless you show this record as proof that you are capable of returning the money, you will not be granted any loan whatsoever. It’s a separate story if you fail later. But, initially this is needed.
• Investors: Every company has a set of investors. This may be one person, two persons or a group or a people. That is not the important point. The focus here is that you need to show them your expenditure and your profits. There are many different avenues of expenditure such as production, management and advertisement. Thus, the investors have the right to know it all since they are the ones who are actually providing you with the money in the first place. Thus, accounting is important for your business so that the investors get a clear picture and understanding about the current status of work and position of the company.
• Budget: I’m sure that every month you need to prepare a budget for your home of the monthly expenses and the groceries that you will be needing. Then you compare with the expenses of the last month. Well, similar is the case with a big scale as well as small scale company. In every firm, it is very important to maintain accounts. This is what is done through the act of accounting. It helps you to make a budget for the month to come as well look back on expenditure that is already done. This is helpful because you can identify areas where you can cut down cost or identify the sectors where you could have earned more but failed to do so. Other than this, it also helps you to devise future expenses and plan means or procuring funds.
• Profit: This is the most important aspect of any business. Without this, your business will cease to exist. Thus, accounting helps you to gauge your overall profit. This not only helps you to keep a track of your work but also acts a motivator to work harder and earn more.