Why Is Accounting Important For Your Business
Scaling up a business takes time and consistent effort. But it also needs the eyes of an accountant. Here’s Future Balance CPAs sharing with us why it makes business sense to involve an accountant in your business.
Many new business owners believe they must first gain customers, hire employees, generate sales, and record a healthy profit margin before worrying about accounting and taxes. They prioritize spending on digital marketing to generate leads or on monthly software subscriptions to manage their day to day efficiencies. The logic that accounting and tax services don’t drive a business’ top line is understandable. But engaging an accountant can also bring value to your business and help you save money. Here’s how –
A measure of business performance
Accounting is the language of business. It communicates and quantifies how a business is performing, and also gives you a window into the future. It can tell you whether you’ll have enough money to buy inventory in the next three months. It can even break down the numbers and identify which one of your products isn’t doing well. An accountant looking at your books can also forecast looming expenses and tax levies that you haven’t factored in. These are just a few of the countless metrics that require tracking and constant monitoring. And an accountant can help you do that.
You need a tight hold on your finances in the early stages of your business because that is a time ripe for quick pivots. Accountants can help you find answers to critical questions like, is my product or service financially viable? At what point do I expect to break-even and become profitable? Can I sustain the up-front investment until the business turns a profit? And how do I finance these costs?
To draw a parallel, most people understand the importance of monitoring a newborn’s vitals. Newborn babies are brought to the doctor’s office, at first, weekly, then monthly, and then quarterly. The frequency decreases as the child grows, because there’s a lot that can go wrong during the early stages of an infant’s development.
This analogy also relates to your business. Meaningful accounting and financial measures have to be taken simultaneous to other efforts that grow the business. This becomes indispensable as the number of stakeholders in your company grow. We are talking about investors, lenders, granters, and the government.
The onus of compliance is on business owners
As a business owner, one of your biggest stakeholders is the Canada Revenue Agency (CRA). They’ll come knocking every year to get an update on how your business is doing, and what profit they’re owed. This is also true, but with varying frequency, for other corporate or business taxes, payroll, sales tax and other duties. If you fail to report your financials to the CRA every year and don’t pay your dues, you’ll be penalized for non-compliance and tax-evasion. It is your obligation as a business to report your income and pay the corresponding tax every year to the government.
What you don’t want to happen
According to the CRA, intentionally ignoring tax laws is a serious offence. And the consequences include audit reassessments, civil penalties, criminal tax investigations, and jail time. Under the income tax and excise tax laws, being convicted of tax evasion attracts fines ranging from 50% to 200% of the evaded taxes and up to five years in jail. If you get convicted of a criminal charge, the jail time is even higher.
The CRA will eventually lose its patience after a couple of years of non-compliance. This is when many small business owners reach out to an accountant for the first time. At this point, the business owes the government a lot of money that they’ve already spent.
To make matters worse, your outstanding balance to the CRA multiplies at a high rate of interest until you pay it off in full. Healthy and viable businesses are brought to their knees as a result of this scenario. Timely advice from an accountant can help you avoid compliance delinquency.
Bad books are bad for business
Without good financial records, you handicap your decision making ability. When it’s time to pick up a lease, hire staff, or take a loan, you need a true picture of what’s sustainable for your business, long-term. Also, new business owners do well when they operate within a defined budget, ensuring company cash is spent on what matters most. With an accountant on your side, you provision for the future and steer clear of anything that could hurt your business. Simply put, know your numbers to grow your business.
About Future Balance CPAs
Future Balance CPAs is a young, energetic and highly qualified accounting and bookkeeping firm specializing in virtual accounting and fractional CFO work. Future Balance CPAs has a strong entrepreneurial focus with involvement in a number of Toronto’s incubator and accelerator programs. www.futurebalance.ca