When people think about accounting for business they tend to think about a set of business accounts, usually produced long after the year end by an external accountant for filing at Companies House because the business is obliged to do so. They are probably only used for keeping the bank quiet and dealing with the taxman and not seen as adding much value to the business.
However this particular type of business accounts, sometimes referred to as financial accounting, is only a small part of business accounting and of what accounting can provide a business with by way of information.
Business accounting is actually a much wider topic which, in addition to producing the statutory annual business accounts, should be providing tools and information (sometimes known as management information systems or MIS) with which to manage the business.
These can include monthly management accounts to show how the business is performing. These can be compared to budget to see if the business performance is matching the expected results and variance analysis undertaken to investigate the reason for differences from budget.
Business accounting, even in the smallest business, should include costings to look at the profitability of the work being done and how this can be increased.
Business accounting should also include tools such as cashflow forecasting to help managers anticipate where their business is going and what resources and finance it needs.
Many people, particularly in small or start up businesses, are anxious about business accounting, seeing it as a technical and time consuming business. But the good news is that it is now easier than ever to be your own business accountant.
There are many user friendly business accounting software packages available which are suitable for small business accounting, some of which can easily be expanded to cope with accounting for larger and more complex levels of business as growth takes place.
Using these packages, you can do most of your business accounting in house but there should still be an external business accountant to act as an advisor and to prepare your year-end business accounts for the taxman and for filing. While not as useful for managing your business on an ongoing basis as management accounts, these are still important documents as they will be seen by organisations such as your bankers and credit insurers and will be used to make decisions as to how much you can borrow and how much credit insurance will be offered to your suppliers.
There can sometimes be an apparent conflict between accounting and what is right for the business, particularly when implementing lean manufacturing systems but these sorts of issues can be reconciled by looking at Lean Cashflow and how to best manage the cash you have tied up in stock and receivables.