Accountants and accounting software vendors (like us) generally agree that accounting, and accounting software, is important for the survival and success of a business.  But why?  And when?  And how many resources should you spend on accounting, based on the size of your business?

It occurred to me that the importance and use of accounting software varies depending on the type of business you are in, and what stage in its development.  Here are a couple of examples:

Start-Ups, Before Making Money

This is where our business is - we have a business, but we’re not really making money.  How does our accounting software help us?

• By tracking our expenses, we can claim tax deductions for what little income we have
• We can monitor our expenses closely to make sure our burn rate isn’t going out of control
• We can compare our project plan to our runway to make sure we have enough money to get to profit
• If we want to apply for financing, loans, or government programs, we’ll be able to produce standard financial statements
• By tracking our GST paid on expenses, we can claim a refundable GST tax credit

Companies that are Making Money

In addition to the above, business that are making money need good financial records for other purposes:

• Tracking Income and Expenses is needed to calculate and pay income taxes
• Businesses making sales on credit need to make sure that they have sufficient cash to provide the products and services sold
• Tracking metrics becomes important for business decision making; questions like “What products and services are the most profitable?” and “How do we keep our best clients?” lead to “What product lines should we expand on?”, “What can we do about our bad customers?”, and “Which customers should we reward for their loyalty?’

Companies For Sale, Public Companies

It’s common for a business owner who has reached some level of success to want to sell the business and start another - or retire.  They can either sell it to a buyer privately, or to the public in an IPO.

• Investors and lenders will want to see standard financial statements
• The public stock markets have strict record-keeping requirements

Closing Remarks

Now that you’ve seen some examples of how accounting software is beneficial, I hope you’ll consider trying our online accounting software.  It’s affordable and easy to use, and you can use it from the beach sipping a tropical cocktail.

If you like this post, please share it with your friends:

• Learn more about Clarity Accounting
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• Log in to Clarity Accounting

Tags: Accounting, IPO, online accounting software, public companies, small business, small business accounting, start-up accounting, start-ups

This entry was posted on Monday, July 21st, 2008 at 4:46 pm by Dobes and is filed under Small Business Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.