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Why is Accounting Important for Small Businesses?

Accounting, GST, tax relief

Traditionally, small business owners hire an Accountant to complete tax returns. After many years of working as an Accountant in the corporate world, I realized there were much more vital reasons for small business owners to hire an accountant.

Decision Making

Accountants, along with the help of a bookkeeper, produce accurate Financial Statements and help business owners understand them. These statements and this understanding are important because they tell business owners the financial results of their efforts. Knowing these results puts the business owner in a much better position to make informed and sound business decisions.

Cash Flow

For example, the Balance Sheet tells us if we don’t have enough money to pay upcoming bills. Knowing this in advance puts us in a much better position to deal with the challenge effectively. Without this knowing, we could easily not realize the challenge until the money is completely gone. By this time it is often too late for the company to survive.

Avoiding Overpayment to the Government

Accounting also plays an important role in not paying too much money to the government. When the Financial Statements are accurate, we know the income being reported to the government is not higher than actual and our expenses are not lower than actual.  Either scenario means we are paying too much in income tax. The same applies to GST. (See our guide to learn more ways to avoid overpaying the government). When the accounting is done on time, no money is wasted on late filing penalties. Quality small business Accountants work with small business owners to make sure the information needed to do their part is accurate and received on time to meet filing deadlines.

Catches Things That Fall Through the Cracks

Accounting is important also because it catches things that otherwise fall through the cracks. Here are some examples:

  • you pay too much to a supplier
  • you pay the wrong amount to the government for payroll deductions, GST or income tax
  • a customer has forgotten to pay you
  • a cheque you have issued has not been cashed and you still owe the supplier
  • an automatic payment has been taken from your bank account in duplicate

When we realize the importance of accounting for receiving and understanding critical information about our business, we have a much better chance of also needing it to prepare tax returns.