Importance of accounting in business

 Most people think accounting is an unnecessary cost to business, while true businessmen understand that accounting is a tool that helps them understand the outcomes of their past business decisions and make even better decisions for the future.

You may be running a successful business with a high turnover, but if you're not accounting for transactions at least monthly, there may be events that could adversely impact your business processes or profitability. For instance, if you've taken a loan at 15% per annum for day-to-day expenses or working capital, from a financial perspective, you need to generate income greater than 15% on the loan amount to ensure profitability. Otherwise, the decision could result in losses and increased cash outflow. If a single production cycle yields only 7% on the amount invested in working capital or production of goods, you'll need more than two cycles in a year. However, this necessitates timely payments from customers so that cash from the revenue of the first cycle can be used for the second.

Considering the above example, proper accounting of business transactions helps track interest payments, revenue generated, profits on revenue, payment cycles from customers, etc. Accounting allows you to verify your plans; without it, you may find yourself needing more funds to keep the business running.

Furthermore, a business that neglects to account for stock, sales, or reconcile sales with tax records risks mismanaging taxes, profits, or compliance. I strongly believe that those who view accounting as a financial burden for their business often make poor financial decisions, leading to being trapped in loan cycles and ultimately damaging the business itself.

Therefore, it is highly recommended to maintain control over your finances, profit sharing, and the best tool for this is accounting.

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