Running a business involves a lot of accounting. It’s an essential part of business operations. You do it every day, even if you’re not aware of it. Every time you record a transaction, prepare tax paperwork, or plan an expense, accounting is involved.
You have to do some degree of accounting to run a business, no matter what. The problem, however, is in the quality. If you’re not thinking about the recordkeeping and accounting, the odds are that your records are a mess, and you’re barely scraping by.
Accountants do so much, and they do it with expertise and efficiency. That makes a huge difference for a business. Of course, accounting is a big field, and accounting services can include many different things.
What Does Accounting Services Include?
Common accounting services include tax preparation and consultation, tracking expenses and revenues, and so much more. Accounting is about producing accurate financial records and maintaining efficient recordkeeping practices.
Recordkeeping covers billing records, taxes, bank reconciliations, general ledger, and payroll records based on periods of time. Bookkeepers also work to generate financial statements for review. All of this falls under accounting, but an accountant can offer much more financial guidance than someone whose role falls entirely under bookkeeping or recordkeeping.
Beyond taxes and records, accountants advise clients on their business by identifying areas that negatively affect its profitability and growth. Services can include consulting on computer systems, business valuations, and retirement decisions.
While all of these services fall under the umbrella of accounting, accounting usually refers less to recordkeeping and more to analysis and evaluation. While recordkeeping is about gathering and preserving data, a lot of accounting is working with that data and generating concrete decisions or advice based on that data.
Here are some of the main different types of accounting:
Public accounting refers to individual accountants or firms that provide accounting services directly to other individuals and businesses. Certified public accountants (CPAs) are most often called upon to prepare financial statements for businesses or to assist with tax filing at the personal or business level.
Public accountants help people to navigate tax regulations and tax returns, and they often assist businesses and individuals targeted by tax audits.
Federal, state, and local government entities operate on a different scale than most businesses. The extent of their operations and the public nature of their finances require different accounting standards at times.
Any public entity that must comply with these standards must provide regular financial statements and annual reports on its finances. Meeting these standards requires specialized accounting skills.
Management accounting is the kind that most often comes into play for small businesses. A management or managerial accountant will help you review your finances, study market conditions, and plan for the future. They give you what you need to manage your business more effectively.
These accountants put together forecasts for business cash-flow and growth so that owners can make more informed short-term and long-term decisions. Management accountants can also help small business owners better understand performance variances in their own business and therefore find a way to respond and improve.
Accountants involved in internal auditing evaluate the effectiveness of a company’s internal controls, corporate governance, and accounting processes. In large businesses and corporations, significant mistakes and problems can go undiscovered for a long time if there’s not someone looking for them. That’s where these accountants come in.
Internal auditing provides management and the board of directors with a value-added service where flaws in a process may be caught and corrected. This is important for protecting corporations from liability for fraud as well.
The Sarbanes-Oxley Act of 2002 set new corporate accounting standards and imposed severe criminal penalties for financial fraud. Internal auditing allows a company to discover and root out these issues as well.
Tax accounting is likely the most common accounting service used by private individuals. Tax accountants specialize in preparing tax returns and helping individuals and companies to fill you their forms and pay their taxes.
Tax law is endlessly complicated and constantly changing, so these accountants have to stay up-to-date on all of the rules and regulations. This helps them to work efficiently and save money for the people they work with. An experienced accountant will know every tax deduction a person can claim and every credit they’re eligible for. These accountants help people keep their tax bills low.
Forensic accounting is about investigation and litigation support. This service is usually involved with lawsuits and allegations of fraud, embezzlement, or money laundering. Forensic accountants read through massive amounts of financial data to find the facts relevant to the case.
Bookkeeping is about maintaining accurate and comprehensive records. This is the bread and butter of accounting. Without data gathered by bookkeeping, accountants have nothing to work with.
Record keeping for small businesses can provide an up-to-the-minute snapshot of a company’s financial situation and health. It involves keeping track of all inputs and outputs and double-checking everything to make sure it’s been properly recorded.
The general ledger is the central document a bookkeeper works with, as it contains all of a business’s accounting data. Then when it’s time to file for taxes or apply for a loan, a bookkeeper can produce a financial statement just by putting together the financial records for a given period of time.
One of the reasons professional bookkeeping services are so important is because of human error. Any process run by people is going to make mistakes. That’s inevitable, and a good bookkeeping system will catch those mistakes. That’s where bank reconciliation comes in.
Bank reconciliation is a process of assessing and comparing your financial records to those of your bank and fixing mistakes if the records don’t match the way they’re supposed to. You process payments and then deposit those payments in the bank. If your records are accurate, your payments record should perfectly match the bank’s record of deposits.
Accounts payable are an essential part of your general ledger and a key indicator for assessing your company’s financial situation at any given moment.
You should keep track of all of your payments and expenditures under accounts payable. As soon as you plan or schedule an expense, it should be recorded in this account. As soon as you order more stock for inventory, that cost goes here, even if you haven’t yet paid that bill.
Keeping track of cash payments you make will give you a sense of how much money you have on hand. However, accounts payable is a category that includes future expenditures as well, which helps you plan. If you have an interest payment on a business loan due in the next month, you can plan appropriately to have the money when you need it.
Accounts receivable are all expected or scheduled proceeds or sources of revenue. If a customer buys a product on credit or with an extended payment plan, you need to know when you expect to receive that income. You might not be able to receive that cash right away, but you can plan future expenses based on the expected in-flows from those accounts receivable.
The category of accounts receivable on a general ledger is important because it lets you look ahead and plan. The more informed you are about your company’s financial situation, the better prepared you are to adjust and adapt as needed.
Payroll processing is another important accounting service. Managing a regular payroll and records can take up a lot of time and effort, even for a small business without too many employees. Accountants work with businesses to organize and automate payroll systems to work better for both employers and employees.
Accounting services regarding payroll can involve gathering employee information, establishing a time tracking system, and managing the actual processing of payments to staff.
Even if the system is mostly automated, accounting work in this arena still involves approving and submitting payroll, reporting and updating records, and working with employees to address any issues.
Many entrepreneurs work with accountants as they create business plans, even before the business has been established. Accountants can be valuable partners in building a compelling business plan and discerning which business entity is right for the owner’s vision.
Accountants can help a small business owner settle on a company name, gather company information, register for an employer identification number, and register their company with the state.
Why Does a Small Business Need Accounting Services?
Running a small business requires doing the work of accounting. However, retaining professional accounting services can reduce error, increase efficiency, and ultimately help small business owners make smarter decisions and investments.
Small businesses need accounting services to produce accurate financial records, provide professional tax consultation, and ensure compliance with state and federal tax law and other business regulations.
Partner with an Accountant
Instead of trying to do it on your own, why don’t you partner with an accountant? With their professional expertise, you’ll be able to save money overall and give your business an edge.
And best of all, you’ll be able to focus on the core of your business. Accounting services are about improving record processes and producing data to equip you better to grow your business and realize your vision.