Why accounting matters for your small business
Accounting helps you plan for growth
A map is the starting point for any great journey. Setting goals is critical when you are planning your company’s growth. What will your profits look like in a year? What about in five years' time?
Financial statements allow you to accurately assess how fast your business is growing. Without accurate financial statements, it can be tempting to depend on easy metrics like "sales growth," which do not provide the complete financial picture.
Has your cost of goods sold went up? Are the margins getting thinner? Are your growth objectives reasonable? You won't have an objective answer unless you have financial statements.
Accounting is essential for securing a loan
Financial statements that are up to date show where your company stands. They are necessary if you want to take out a loan to fund your small business.
Assume you want to apply for a business bank loan. You'll need to provide three years' worth of financial statements, as well as a one-year cash flow projection. If you don't have an accounting system in place, it's nearly impossible to deliver any of these.
You need accounting to get investors or sell your business
You may not be looking for investors or selling your business right now. However, it is a good idea to keep your options open. And the best way to do so is to implement a proper accounting system immediately.
Accounting records that show your business is profitable and on track for growth will be expected by potential investors or buyers.
Accounting helps you get paid
When a customer owes you money, it appears on your balance sheet as Accounts Receivable (AR). Accounting software or your accountant will prepare this for you.
The balance sheet shows how much of your AR you've already pocketed and how much is still outstanding at the end of the month.
You can track how effectively you collect payment by referring to your balance sheet. Then you can put processes in place—such as stricter payment deadlines or better client follow-up—to ensure that you get your hands on the money you've earned when you need it.
Accounting keeps you out of jail (or at least saves you from fines)
It can be difficult to keep track of all your tax information reporting obligations as your business grows. Furthermore, if there are errors in your financial reports, you risk falsely reporting your income. Either mistake may land you in hot water with both SSM and LHDN.
Solid accounting provides you with complete, accurate financial records, lowering your risk of violating tax laws. And, when you hire an accountant (or tax agent) to file your taxes, you can be confident that they will be completed accurately and on time.
Accounting helps you pay the right amount of taxes (and not a dollar more)
The LHDN will fine you if you do not pay your entire tax bill. However, they will not award you a gold star for overpaying.
If your company consistently receives large tax refunds, you're paying too much in taxes.
Remember that a tax refund is not free money from LHDN. It is money that the government has held while you could have invested it in your business.
Refunds are frequently issued as a result of incorrectly calculated quarterly estimated tax payments. To accurately calculate quarterly estimated tax payments, you must predict your income. It is nearly impossible to do so without accurate financial records generated by accurate accounting.