When you think of accountants, you probably think of people who help you file your taxes. However, the benefits of working with a good accountant extend far beyond that. Financial accounting gives business owners insights on various issues, including cash flow, borrowing capacity, tax savings and short- and long-term strategies.
Accurate Financial Statements
The information in financial statements is critical for business owners, entrepreneurs, and employees. It plays a big part in planning strategies, making decisions, estimating failures, determining success, and getting the word out about a company. Moreover, a company’s financial statements give investors and lenders more power to make sound decisions using standardized litmus tests. A balance sheet shows a snapshot of assets, liabilities, and owner-held equity for a given period. It’s also essential for calculating the approximate cash value of a company. Financial reports can also help identify illegal activities like fraud by catching discrepancies in the numbers. This is why many companies invest a lot of time reconciling their books of records and checking each section so they can see any errors that may have been made during the accounting process. This also makes it easier for them to get accountability from anyone who may have tampered with the numbers. This helps keep their reputation intact and avoid legal repercussions.
Financial planning is creating a roadmap for your business’s economic growth. It includes establishing financial objectives, developing strategies and preparing budgets to meet those goals. It also involves identifying and mitigating risks that may impact your company’s finances. Whether you want to improve cash flow or increase your profit margin, certified public accountants can help you develop an effective financial plan. This type of plan is essential for ensuring your business’s long-term success, as it enables you to set clearer financial goals, manage expenses better and raise funds more easily. A financial plan also helps you identify cost savings by comparing actual spending against a forecast. For example, spending more than your sales revenue will allow you to identify ways to reduce unnecessary expenses. It also enables you to make better investment decisions by optimizing your balance sheet with detailed breakdowns of assets, costs, revenue and typical expenditures. This level of visibility empowers your team to make more informed financial decisions and improve productivity.
About 85 million taxpayers pay someone to prepare their income tax returns each year. Whether you choose an accountant with a CPA credential or a non-credentialed preparer, you will expect the person to be trustworthy (you are entrusting them with personal financial details), skilled in tax preparation, and knowledgeable about tax law. Good recordkeeping is vital to effective company tax preparation and can help minimize tax liability. It also makes it easier to provide documentation for items such as medical expenses, deductions, or tax-loss harvesting. CPAs can manage the complex facets of corporate tax preparation, including establishing reporting methods, filing estimated taxes, meeting tax deadlines, and operating taxable income. They can also represent clients before the IRS to resolve any tax problems. In addition, a good CPA can provide business owners with strategies that optimize their tax position. This can mean everything from bunching expenses to maximize deductions to increasing retirement plan contributions to defer income.
The financial analysis assesses a business or sub-business’s viability, stability and profitability. It is used to evaluate economic trends, set monetary policies, build long-term plans for business activity and pinpoint projects or companies for investment. It can be conducted in both corporate finance and investment finance settings. Performing regular financial reporting and analysis helps your company improve its bottom line by identifying inefficiencies and opportunities for cost savings. CFI’s accounting classes teach you the techniques and methods that allow you to perform world-class financial analysis. For example, a sensitivity analysis evaluates the impact that changes in key assumptions could have on financial results. This technique allows you to determine the potential risk of making major shifts in your business’s premises. Similarly, a cash flow statement is a good way to assess your short-term working capital, analyzing turnover rates for accounts receivable, inventory and accounts payable to identify areas where you can improve your use of cash.