The standard of service any agency or organization provides can only be effective if the agency itself is financially healthy. The future prospects of an agency in business terms thrive on its financial health. From this, it is apparent that maintaining a stable and prospective financial status is integral to the operation of your agency. So what are the things required to ensure a strong financial base of an organization?
The accounting practices has been the lifeblood to the running of all kinds of businesses since the start of commerce itself. Accounting is the means of communicating the financial health and stability of an agency within itself and to the outside world. It involves ways of assessing the assets, liabilities, cash flows and day-to-day transactions that directly affect the running of an agency.
Although there is no hard and fast rule on how you practice accounting, it needs to be as per the laws and rules of the respective sector. Most agencies follow the Generally Accepted Accounting Principles or GAAP as a guideline to their accounting practices. Whatever method you choose to follow, it is important to understand that good accounting practices will help your business grow while bad accounting practices can bring it down. So extensive is the fundamental value of accounting that Wilberforce stretches it to a spiritual level.
Life as we know it, with all its ups and downs, will soon be over. We all will give an accounting to God of how we have lived. -William Wilberforce
There are a number of ways accounting is practiced by organizations to maintain an overall unity of financial activities. While small agencies can manage with one or limited ways, big agencies may need to practice other ways of accounting to bring all financial matters at one vantage point. Some accounting practices generally followed by agencies can be:
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Financial accounting is the means to communicate with the outside world about the financial health of your agency. The purpose of this accounting practice is therefore external. Information about the financial condition of your agency is given or relayed to other domestic and international businesses by publishing financial statements and reports like balance sheets and audit reports. This helps other organizations to take stock of the financial health of your agency and make decisions accordingly. It could be for a loan, a business partnership or some other interrelated purpose.
The practice of management accounting is mainly to regulate financial activities internally. This helps the administration of any business to prepare daily work plans and outline the future ones. Management accounting involves preparing and evaluating everyday transactions though bookkeeping and general accounting. This type of accounting practice helps agencies like yours to keep track of everyday transactions, which are required to run the business smoothly. It also helps in understanding your daily office needs, whether it is increasing or decreasing or if any immediate changes are required. It generally involves budgeting, handling taxes, managing assets, and strategic planning.
The running of any business comes under the jurisdiction of state or federal laws. As agency counselors, you will need to be aware of the laws and regulations that govern your sector of business. It is important to stay updated with the revenue department to avoid any state prosecution that may hamper your business.
As a measure of monitoring the financial activities of your agency, accounting evaluates the company’s success. Maintaining an upper hand in the debit-credit balance should be the objective. Achieving this kind of balance requires effective handling of transactions in other accounts of credit (loan), payroll to employees, and calculation of receivables and payables.
At all times, you must be aware of your tax obligations. A number of laws and regulations are bound to affect your business if your agency’s regulative status does not match with the one prescribed by the authority. There may be other related factors in this, such as fines imposed on failure to pay taxes on time, and so on. To avoid these hassles and save time, it is important to monitor your agency’s financial performance on a consistent basis.
We can thus infer that accounting is very crucial to the overall wellbeing of your agency. All businesses survive on profit and accounting is the practice that shows how well a business is doing in this regard. Small to large companies practice accounting from the very basic to highly complex levels. As a factor that oversees different aspects of your company, which directly or indirectly influence how your agency functions, it helps you to pinpoint the flaws and areas in need of improvement. With a clear sight on the pros and cons of financial activities, you are able to introduce changes and make plans that best suit your needs.
By understanding the importance to make accounting an integral part your agency operations, it helps if you know the ways to go about maintaining good accounts. One foremost thing that needs your focus would be to keep track of all your expenses. A sole proprietor could do this personally and easily, while bigger companies or partnership ventures may require a full-time accountant. Bookkeeping can help record daily transactions like bank deposits, withdrawals, debit & credit transactions as well as monthly balance sheets, which are good evaluators of your business health.
You will also need to categorize your employees and contract workers separately. The employees of the agency, often people who work on a regular basis, can be included in an official payroll system. This keeps the transactions with them official and on track.
Bad Accounting: Adverse Leash to Downfall
If utilized as an integral and irreplaceable part of your business, accounting helps you separate the wheat from the chaff, and plan your next business steps. However, neglecting it will present many unforeseen problems in the future and you will spend most of your time taking care of these shortcomings instead of focusing on growing your agency business. Despite the fact humans have been doing business for hundreds of years, many people sometimes only realize the importance of accounting when it is already too late to make amends. An analogy once compared bad accounting to having a good meal at your local restaurant and waking up the next morning with an upset stomach. It is not until the damage has been done that you realize you are suffering from food poisoning.
We can even learn from the examples of financial downfalls of big enterprises in the most developed countries. One of the biggest institutions in the banking sector of the United States (US), Lehmann Brothers, headed to a downfall in 2008 after their investment in mortgages proved too heavy to recover. Similarly, insurance giant, AIG, also had a financial crunch and had to take a 24-month credit from US Federal Reserve in 2008. In January 2012, German retail company Schlecker, a company with 52,000 employees, went into insolvency due to continuous losses amounting since 2011. Other bad practices that only bring further bad results for business could be failure to meet deadlines, over-hiring of employees and not charging enough for services, among others.
Things you can do to avoid the pitfalls
Bringing all work-related activities under a set process or system will help in keeping your financial activities regulated as well as ease the burden on part of the agency counselor. As the present status of your business cannot be the ultimate factor in determining its future prosperity as well, sustaining good prospects is equally important to envisage brighter ones. For this, an agency needs to evaluate and re-evaluate its financial performance constantly and consistently. Whatever the reasons may be for bad accounting practice , here are some basic things you can do to help avoid the pitfalls and run your business as smoothly as possible.
Keep It Simple
Keeping bookkeeping pretty simple helps to run businesses smoothly. Having complex headings and procedures will only lack clarity and spoil effective communication. Bad estimate plans prove to be one of the most common ways investors end up losing their money.
After investing, the profits may not cover the overheads or investors may be on the receiving end of over-investment or under-investment. Therefore, to avoid lack of accuracy in business estimates, you need careful prior consideration. In fact, it ought to be so simple that you should be able to understand it fully, even though you may not be an accountant.
As we now know after much deliberation that accounting is the lifeblood of any business, it begs the question how qualified the person managing your account is. The person who keeps the accounts has to be a professional who possesses a high-level of work expertise in this field. Along with carrying out his due work, he has to be able to advise the agency on financial matters. It is not going to help if the accountant is doing his work but is clueless about the nature of your business or the financial externalities you have to deal with. If you have someone doing the bookkeeping with no idea on such matters, you may have most certainly hired a tax-preparer instead of a qualified accountant!
As Libby Kane puns it in her blog: “Welcome to the Accounting Department, where everybody counts”.
Use Technology Effectively
These days, software like Zoho Books, Quickbooks and Wave help make accounting more effective and easy. Zoho Books manages money flowing in and out of the agency, and helps you keep the expenses in check. It also helps you to stay connected with clients and maintain transactions with them. Real-time collaboration with accountants is a special feature in Zoho Books.
Another useful accounting software is Quick books. You will be able to find its licensed version online. It gives access to interacting with clients and helps keep the information of clients and employees. Wave is 100 percent free software with the real double-entry accounting system. Since it is a cloud-based software, access to it is possible from anywhere and it has unlimited collaborators. With the help of software like these, time saving, efficiency, and even financial reports are just a click away.
Launched in 2004, Quick books Online software now caters its service to more than 1,397,000 businesses. Similarly, according to Wave Apps , more than 2 million small businesses and freelancers use the accounting software to send invoices and manage their accounting and bookkeeping.
As a firm dedicated to restaurant practice in the United States, BDO is an accounting firm that organizes round tables and conferences on finance for accounting professionals in the restaurant sector several times a year. Its event Restaurant CFO Bootcamp® is regularly attended by top restaurant executives including CEOs, CFOs and controllers. Conferences of this sort are aimed at promoting the restaurant industry through good accounting practices. GAAP’s website gives examples of multinational companies that follow financial filings as per GAAP. Some of these companies include Coca- Cola, Apple, Microsoft, Nordstorm, and Google.
Accounting helps build a track for your business to tread. The prosperity and longevity of your business will depend on how well it is doing financially at present and how it envisages its financial future. Accounting provides the framework for agencies from where they can chalk out their budget, plans, and strategies.
This here then calls into play many factors that directly or indirectly affect your business. It does not only include monetary matters, but also intangible elements like making business plans and decisions. When good accounting becomes a cornerstone of your business, it gives you an impetus for the formulation of better business plans. It is indeed a boon, if done the right way.