Do We Need Accounting System For Small Business?

Accounting is a very important practice for both small and large scale enterprises. This is because it provides accurate information on the progress of the business at any point in time. It is therefore wrong for small businesses to ignore the importance of accounting in their operations. Charlie Munger once said that you have to know accounting. It is the language of practical business life. It was a very useful thing to deliver to civilization. The size of the business does not matter. Here is a sneak peak of the reasons why small businesses need an accounting system.

· It helps in bookkeeping
Double entry bookkeeping is said to be a hell of an invention and rightly so. Actually, every transaction in a business affects two accounts in an equal and opposite way. Failing to follow this principle is planning to fail, and doing it manually is burdensome. This calls for the adoption of an accounting system which ensures that the bookkeeping equation is satisfied by every transaction of the business so that at the end, accurate reports can be produced.

· It facilitates customer payments, deposits, invoicing and account charts
Processing customer payments, deposits and invoicing procedures is not always a walk in the park especially in a growing business. It has been reported that most small business managers spent the better part of their time in their business monitoring these procedures instead of looking out for new business opportunities. The chart of accounts is an essential accounting tool that points the direction to which every aspect of the business is going or should be going. All these procedures are done easily and effectively by an accounting system.

· Tracking of company expenses is a piece of cake with an accounting system
Keeping expenses at the lowest possible level is one of the greatest principles of business management. No one is in business for charity. Every small business man needs to maximize profits. However, for this to happen, an accounting system must be there to point out the areas where the business is overspending and what should be done about it.

· An accounting system also facilitates processing of taxes
A small business must pay taxes in accordance with the guidelines laid out by the Ministry of Trade and Industry- Singapore and the Generally Accepted Accounting Principles. The Institute of Certified Public Accountants of Singapore also direct accounting and taxing principles, but this can only be understood through an efficient accounting system. Keeping in mind that improper processing of taxes can attract a lawsuit, it is important to process and pay taxes effectively and efficiently through an accounting system. Improper tax management in a small business is the recipe for failure.

· Accounting systems make bank reconciliation and analysis of accounts receivables/payables easy
Balancing of accounts receivables/payable, cash and bank accounts are quite tiresome when done manually. The ease with which errors can be made when doing so is an insult to the injury, not to say that they must be balanced off and reconciled. An accounting system is the only way to balance these accounts effectively and efficiently.

· It also helps in giving the overall financial standing of the business
An accounting system facilitates business reporting at any point in time. The balance sheet, for instance gives the net worth of the business at the time it is prepared, and this is important in evaluating the performance of the business and the ability to survive mild and severe financial crises. The profit and loss account gives an insight into the profitability of the business. This information helps the small business owner to decide how to cut costs and improve sales in order to maximize profits.

· Accounting system offers advice on growth and development strategies
Just like any other business, a small business must go through the phases of business growth and development which include depression, expansion, growth and development. We have seen many small businesses going under receivership during tough economic times, and this is what an accounting system tries to prevent. It points out the red flags at the most appropriate times in order for the small business owner to take the necessary action.

· It saves time
Time is the greatest resource in business. You need dedicate more time to your business growth prospects rather than spent several hours trying to make head or tail of the daily business operations. Let the accounting system do that for you while you think of how to gain the cutting edge over your competitors. You need to invest most of your time in making important decisions in the business if you are to survive the cutthroat competition in your field.

· Financial documents are produced by an accounting system
The importance of financial documents cannot be overemphasized. Improper handling of these documents highly contributes to collapsing of the business. Some of the most important business documents produced by an accounting system include customer statements, account reconciliation reports and progress records.

· It encapsulates adoption of technology in business operations
The impact of technology in business is undeniable, regardless of the scale of the business. An accounting system offers a small business the opportunity to add technology in the operations of the business in line with common business practice. This is a step in the right direction especially at these times when computers no longer make us feel like old Jurassic fossils. In a nutshell, you have to understand accounting if you your business is to thrive, whether it is big or small. You have to understand the nuances of accounting, because it is the language of business and it is an imperfect language.