The global economy has taken a hit during the pandemic. Although we see a slow recovery, individual businesses are finding it harder to recoup their losses. It is not surprising that entrepreneurs are trying to cut back on costs.
Cost-cutting is easy. You just cut back on the nonessentials. The bigger question here is, what are the nonessentials?
You might be thinking of cutting back on professional accounting services. After all, you only need them during tax season. But before you take such a colossal step, why don’t you review the facts?
Doing a little research will help your company weather this pandemic. Let us start.
Purchasing accounting software would be cheaper than hiring an accountant. This assessment may be true. But an accounting software cannot prevent theft.
When you hire an accountant, you hired them to create the necessary financial statements for your income tax return. But their training is not limited to that. They can also look for weak spots in your company.
If you hire them to do this, you save yourself a lot of money. They will check your inventory system and cash depository process. These two are the usual targets of theft.
Once they understand your financial structure, they will create a system that will prevent theft. This new process should not only stop the theft of physical assets. But it can also prevent industrial piracy.
The accountants will continue to study the accounting system that they have created. They will do this to see if the internal controls that they have set in place are working. If it is not working the way it should be, they will create another one.
Once done, you can proceed to the use of accounting software for the creation of financial statements. You are now assured that the risk of theft is minimal.
As an entrepreneur, you should know the ins and outs of your business. You would be the perfect person to work on the financial statements. Unless you are an accountant, this is not a good idea. Doing this will be like cutting back on industrial insulation in the middle of winter.
An accountant can recognize which costs are assets and which ones are outright expenses. On the other hand, you might write it off as an expense.
Let us take the purchase of insurance. An accountant would divide the cost into twelve months. On the month that you purchased the insurance, they will treat it as an expense. But the rest of the cost will be considered as an asset.
The correct recognition of assets and expenses will prevent you from overpaying your taxes. It will affect your company’s liquidity.
On the other hand, if you treat such a cash outflow as an expense, it will mean that your expenses are overstated. This might not greatly impact your financial statements if the purchase was made at the start of the fiscal year. But it will lead to complications if the prepaid insurance covers more than one year.
An accountant understands that financial information is valuable if it is delivered on time. They will work on your financial statements and deliver them to stakeholders while the data is still helpful.
By doing this, they allow you to focus on your business operations. They can create a horizontal analysis for your business so that investors can have a better view of your company’s profitability. Simple accounting software will not be able to do this. It can only create the financial statement – nothing more, nothing less.
An accountant will produce a horizontal analysis because it shows the company’s profit over several periods. But if you have several lines of business, they will suggest creating a vertical analysis. This type of report will help stakeholders see which section is most profitable.
Cost-cutting is a good tool to employ to keep your company afloat. But cutting back essential services will lead to more expensive problems. You should defer making such a decision.
You should carefully study the implications of that cost-cutting measure. Will your company gain anything by doing such a thing? Or are you opening up a can of worms?
You may think that business leaders take such a step easily. But they study the pros and cons of that move. The data in their hands are usually prepared by accountants or those with experience in finance or management.
Cutting back on accounting services may appear to be a good idea. But the advice of an accountant can help you make good business decisions.