Why do you bother to do accounting in your small business? So that you can do your tax return at the end of the year? So that your accountant can prepare a nice set of financial statements for you to give to your banker? While both of those are important, I hope that they are not the primary reason you do your accounting.
In my opinion, the most important reason to do your accounting (and to do it on a regular basis) is because it provides you (the business owner) with information that is essential in helping you make business decision. If your accounting system isn’t doing that for you, then it is time you made a change.
I have a client for which we have just finished revamping the accounting system. This client is in the construction industry and the accounting system was unable to tell the owner which jobs were making him money and which were not. He could not even tell which types of work were most profitable. Worst of all, he thought that his general and administrative expense was eating up whatever was left over after paying all of his direct costs.
The client was already using a good accounting software program (a great start). We created a whole new set of accounts which more accurately described the client’s sources of revenue and expenses. We grouped the expenses so that management could clearly see which costs were directly related to construction work and which were general and administrative. We also set it up so that we could look at the revenue and direct expenses from each individual job and from each type of work.
As the client begins a new fiscal year with a new accounting system, the owner is really excited about being able to use his accounting information to control his business in ways that were never before possible. You could start your next year with the same feeling.
Thanks for the content of this article to Jeff MacFarlane, C.A. www.T2Canada.ca
A virtual office and portal for corporate tax preparation services for professional bookkeepers.
Soma Small Business Solutions