Financial record-keeping is a vital aspect of every business, regardless of size. It involves keeping track of all the financial transactions within the organization, including income, expenses, and taxes. Failure to keep accurate financial records can lead to serious financial problems, including cash flow issues, legal problems, and even bankruptcy. For this reason, many business owners hire an accountant to do the job for them.
An accountant is a professional who specializes in financial record-keeping, tax preparation, and financial analysis. They work for businesses of all sizes, from small to large corporations. Accountants can provide businesses with various services, including bookkeeping, payroll management, tax preparation and planning, financial analysis and reporting, and cash flow management. The last one is critical because cash flow management is critical to the success of any business. Despite this, many business owners tend to pass on them because they think an accountant is an unnecessary expense, which is never true.
Bearing this in mind, accountants can help manage a business's cash flow in the following ways:
1. Identification of Deductible Expenses
Accountants help manage business cash flow by identifying deductible expenses. Deductible expenses can be deducted from the business's taxable income, reducing the tax owed. By identifying deductible expenses, accountants can help businesses to reduce their tax liability and improve their cash flow.
Some common deductible expenses include:
Office rent and utilities
Business Insurance
Employee salaries and benefits
Marketing and advertising expenses
Office supplies and equipment
All of these expenses are considered operating expenses for a business, which means they are necessary expenses incurred to keep the business running on a day-to-day basis. In other words, these expenses are not directly related to producing goods or services but are necessary to support the operation.
2. Keeping Track of Invoicing
Invoicing refers to billing customers or clients for your business's goods or services. With an accountant, you can ensure that all invoices are properly recorded and tracked, including payments received and outstanding balances. This can help prevent missed or unpaid invoices, affecting the business's cash flow and overall financial health. Additionally, an accountant can guide invoicing best practices, such as setting payment terms and following up on overdue accounts.
For example, if a business owner is not keeping track of invoicing, they may not realize that a client has not paid for services rendered. This can lead to cash flow issues and may cause the business to struggle financially. An accountant can help the business stay on top of invoicing, ensure all clients pay their bills on time, and avoid financial difficulties.
3. Tax Planning Optimization
Tax planning optimization involves creating a tax strategy that minimizes a business's tax liability while complying with tax laws. An accountant can help businesses identify tax deductions, credits, and exemptions they may be eligible for and advise on tax planning strategies to help reduce tax liability.
For example, an accountant may suggest that a business invest in tax-advantaged retirement plans, such as a 401(k) or IRA, to reduce taxable income. They may also advise on the timing of purchases or sales of assets to take advantage of tax benefits. By optimizing tax planning, a business can save money on taxes, which can be reinvested into the business to fuel growth and expansion. It can also help businesses avoid penalties and interest charges for late or incorrect tax filings.
4. Creation of Cash Flow Projections
Cash flow projections are an essential financial planning tool that helps businesses forecast their cash inflows and outflows over a specific period, typically 12 months. An accountant can help create cash flow projections by analyzing historical financial data, identifying trends, and making assumptions about future sales, expenses, and investments.
Cash flow projections can help businesses anticipate potential cash shortfalls and proactively manage their finances. For example, they may adjust their spending or seek additional financing to cover expenses during periods of low cash flow. Cash flow projections can also help businesses make informed decisions about investing in new opportunities, such as expanding their operations or launching new products or services.
Considerations When Hiring an Accountant
When hiring an accountant, there are several considerations businesses should keep in mind. These include:
Qualifications and Experience
Businesses should ensure that their accountant is licensed and qualified to handle their financial matters. They should also look for an accountant with relevant experience in their industry and with similar-sized businesses to ensure they understand your financial needs.
Services Provided
As mentioned, accountants offer various services. For this reason, the accountant you hire must provide the specific service you need, whether bookkeeping, tax planning, or financial analysis.
Availability
If your accountant is a freelancer, you must consider their availability. Will they be able to meet your needs and deadlines? Will they be accessible for communication when you need them? On the other hand, if you hire an accountant from a firm, consider their team's availability and whether you will have access to multiple accountants if needed.
Fees
Above all else, you must get your money's worth when hiring an accountant. Some accountants charge by the hour, while others may offer a flat fee for specific services. Consider your budget and the value you expect to receive from the services provided when evaluating the cost of hiring an accountant.
Conclusion
Cash flow management is a fundamental aspect of running a successful business, which can be achieved by having a reliable accountant. Many accountants offer their services, so it's only a matter of finding the right one for your business. This way, you can look forward to having accurate financial records, timely tax filings, and sound financial advice to help you make informed business decisions.
Yasso Bookkeeping Solutions can help you if you need a business bookkeeping service! Small business bookkeeping is unlike regular bookkeeping, so we provide customized bookkeeping solutions to ensure accurate financial records. Call us today at (516) 297-7025 to schedule an appointment!