The importance of accounting for SMEs

One of the most important pillars of business in general and small and medium businesses in particular is the company’s accounting system. Unfortunately, from my experience with many companies, this role is largely ignored. Many entrepreneurs may think that accounting is secondary because they know all aspects of work, or they limit the role of accounting to paying taxes without being concerned with what the financial statements monitor, or by employing a person without the necessary qualifications or experience, which will unfortunately harm the business. Therefore, I encountered many entrepreneurs who periodically pump money into their company and do not know the reasons, even if they had a blurry idea.

The importance of an accounting system stems mainly from the need to provide three main financial statements that illuminate the path of dark work. These data are:

Profit and Loss Sheet: It shows in detail raw materials, utilities, rent, labor costs, marketing and benefits, which through periodic analysis shows the business ratios in comparison with similar sectors and assist to optimize them.
Balance Sheet: it gives a clear idea of what the company is and what it owes. In other words, it shows the bank accounts, receivables, assets, etc., and on the other hand, the short or long-term obligations of the company, such as loans, taxes, or payables.
– Cash Flow Sheet: It calculates the company’s financial resources from several activities, whether it is the main activity, investment or other, and thus gives a clear picture of the company’s cash flows and whether we have an abundance of cash or not.

There are also other reports such as the receivables aging report, sales analysis, cost ratios or individual sales performance.

Periodically reviewing and analyzing this data will necessarily lead the decision-makers to better extrapolate and decide on better business decisions such as expansion, employment or marketing.

Working on hiring an accounting staff capable of performing the work properly is important. It is also important to analyze these reports and acting accordingly.

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