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Why every entrepreneur needs to understand accountancy

Any entrepreneur that does not have a good understanding of accounting is taking a huge risk. This is because accounting is the way you monitor how well your business is doing.

Spot problems early

Your accounts are how you keep track of your money. If you run out of cash, even if your sales are growing and your profit margins are high, you will still end up going out of business.

It is quite possible for a successful, and profitable, business to have to go into liquidation. This happens to thousands of companies every year. The only way to avoid this happening to you is to run regular cash flow projection reports and monitor it closely.

This allows you to spot cash shortfalls at an early stage. Doing that gives you enough time to arrange a short-term loan that can be used to take you through that period and allow you to stay in business.

Ensure that you pay all of your taxes

Naturally, it is very important for you to comply with the tax laws. If you are not very good with accounting, you can easily run into problems with the tax authorities. Also, bear in mind that having to pay a high level of back taxes and fines could put you out of business.

Remember, it is not enough to employ an accountancy firm. You need to check that they have filed the returns and that the tax you owe is paid on time.

Knowing the basics of accounting will also help you to understand the kind of information that needs to be kept, and recorded. It enables you to train your staff to do what is needed to keep accurate accounts. Your accountant cannot do a good job using poor quality or incomplete information, so training your staff to keep good records is important.

Help you to secure finance

When you need a loan, you have to convince the potential lender that you can pay it back. If you have a good understanding of your accounts and taxes, you can use that information to convince them that you can repay the money.

Lenders feel more comfortable lending to financially literate business owners. Therefore, demonstrating that you understand how accountancy works can increase your chances of securing a business loan.

Learning about accounting does not take long

For business owners, learning about accounting makes a lot of sense. It will only take you a few hours to go through what you need to know with your accountant.

If it is more convenient, you can find this basic information online. Learning the basics of accounting really is time well spent.

Posted by Peter
March 5, 2016

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