|What Is the Purpose of Accounting and Finance in Business?
Accounting and finance are two aspects of business that business owners can't ignore. No matter the size of your business, you need accounting to examine the financial health of your business and determine how much tax you should pay to the government.
A popular adage says that "accounting is the language of business". However, "finance" in this context means the "literature" of the language.
Purpose of Accounting and Finance in Business
The purpose of accounting and finance in business is to provide a systematic approach to manage financial information, make informed decisions, and ensure compliance with financial regulations.
It is the duty of accounting to provide the financial statements of the business. Once these statements are ready, finance will help the company interpret them to help management make valid decisions.
Good and timely decisions are important for business owners to move their business forward. Hence, small business owners must understand that accounting, bookkeeping and accounting policy are important if they truly want to see the business expand.
There are several benefits of following those accounting policies and practices. The benefits are both long and short-term. This blog post covers why accounting and finance are important to small businesses, but we can't go dipper without explaining the basics.
What Do Accountants Do?
Accountants are like the backbone of every business. They are certified professionals who are responsible for recording, analyzing, interpreting, summarizing, and communicating financial information to enable the users of this information to make decisions.
Accountants handle the following tasks:
- Guaranteeing the accuracy and adherence to accounting standards and policies for all financial records.
- Compiling and organizing essential financial information.
- Managing the preparation of annual tax returns.
- Generating projected statements and risk assessments.
- Advising on optimal business practices for enhanced efficiency.
- Identifying discrepancies and inaccuracies in record-keeping.
- Formulating strategic recommendations based on financial data to optimize profits, reduce costs, and boost revenue.
In other words, we can say that accountants are in the best position to check and understand the financial health of a business. They are like the doctors of the business world. When your business finance is unhealthy, you should consult an experienced accountant near you for advice on how to move forward. Same way, you consult a doctor when your health is failing.
Accountants will diagnose your business and tell you the areas you need to pay attention to put your business back on the right path. You can hire a full-time accountant, who will take care of your accounting needs or use outsourced accounting services.
Outsourced accounting is like outsourcing your accounting to an accounting firm to help you handle your books. Although, both hiring an in-house accountant and outsourcing accounting services have advantages and disadvantages.
One of the advantages of hiring a full-time accountant is that he will be available for you 24/7 since he is also an employee of the company. However, one of the disadvantages is that you will be responsible for hiring, buying office equipment like accounting software and sponsoring their training when the need arises.
For outsourcing your accounting services, one of the several advantages is that you will outsource your accounting to experienced professionals and have time to focus on other areas of your business. There won't be a need to get office space, buy office equipment and train an accountant, since they will handle their training themselves.
The disadvantage is that they will not be available 24/7 to attend to your needs and you will expose your business information to a third party outside your organization.
The choice of hiring a full-time accountant or outsourcing depends on the size of your business, budget and what you want to achieve. You can consult with an experienced accountant near me to advise you on which is best for your business.
Different Types of Accountants
You might think that all accountants are the same. But you are wrong, my friend. No one accountant can handle all the types of accounting. They can have little idea about each types of accounting, but they need to specialize in a particular accounting field to become an expert in the field.
The different types of accountants include:
1. Staff Accountant
A staff accountant is an employee of a business. They can handle various accounting tasks and don't have a particular specialization. The primary duties of a staff accountant involve generating and scrutinizing financial reports and data. They report to a certified public accountant (CPA) and typically hold a bachelor's degree in accounting.
Depending on how big the company is, a staff accountant might also do other finance-related jobs like bank reconciliation, creating budgets, and keeping track of financial records.
2. Chartered Professional Accountant (CPA)
CPAs are super-special accountants. They usually deal with state and federal taxes. But they can also be hired by companies to supervise staff accountants. They can perform audits, tax services, and offer financial advice.
Because they've studied a lot and know a ton about accounting rules, audits, and more, they often become the financial advisors for the company.
3. Investment Accountant
An investment accountant is an accounting professional who works in an asset management or brokerage company. They are responsible for identifying investment opportunities for the company they work for, and also use their knowledge of the finance industry to improve the financial strategy of an organization.
4. Project Accountants
As their name implies, these accountants are brought in to work on a specific project for a fixed period. Project accountants manage and monitor financial aspects of specific projects within an organization. They ensure that the project stays within budget and meets financial goals.
5. Cost Accountant
Cost accountants are experts at reducing the cost of production for large manufacturing companies, aiming to boost their overall profits. They achieve this by identifying inefficiencies in the production process of these companies and eliminating unnecessary costs, leading to improved productivity and profitability.
6. Financial Accountant
These accountants concentrate on preparing financial statements, including balance sheets, income statements, and cash flow statements, to convey a company's financial health.
7. Management Accountant
Also known as cost, managerial, corporate, or private accountants, they focus on internal financial data to help organizations make informed business decisions. These accountants are experts at examining a company's financial information and foreseeing what it might mean for the whole organization. They provide guidance, suggestions, and advice on how to enhance a company's financial well-being.
Auditors assess an organization's internal controls, risk management, and compliance with policies to improve efficiency and minimize risks. Auditors are responsible for making sure that all financial data in an organization is recorded accurately and follows the relevant financial regulations.
9. Financial Advisor
Financial advisors and CPAs have very similar jobs. They both aim to make their clients' financial situations better by offering smart financial advice to help them achieve their financial goals.
Difference Between Accounting and Finance
Accounting and finance are not the same. The major difference between accounting and finance is that accounting is more interested in income statement, balance sheet, and cash flow statement while, finance is concerned with the bigger picture of the company and areas to identify growth.
Importance of Accounting & Finance For Small Businesses
Regardless of a business's size, accounting and finance are always crucial for its success and growth. Whether you rely on one of the top accounting firms in Texas or use online accounting software, the role of accountants should never be underestimated.
Financial accountants, general accountants, and even the top accounting firms in the UK can assist business owners in making wiser financial choices and ensuring that their business follows the rules of Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS).
Conclusion: What Is the Purpose of Accounting and Finance in Business?
Accounting and finance are the bedrock of any business. They provide the financial roadmap for business owners to manage their books and make smart decisions. Without them, a business would be like a ship without a captain.
Therefore, invest in your company's accounting department and you won't regret what you did. Some of the ways to invest in your accounting department include hiring an experienced accountant and buying the best accounting software for small businesses.