What Does an Accountant Do for a Small Business

What Does an Accountant Do for a Small Business

Let us first begin by understanding what the term business denotes. Only then can we identify the actual need for accounting, how it forms an integral part of a business enterprise, and what role an accountant has to play for the success of the business organisation.

What do you understand by ‘business’?

The term 'business' refers to an enterprising entity or an organisation engaged in commercial, industrial, or professional activities. 

It means an enterprising entity formed to carry out professional activities. It organises some economic production of either goods or services. 

Now, a business is only sometimes directed at gaining profits, even though it generally is. 

Still, businesses can also be non-profit entities at times, where non-profit business organisations aim to fulfil a cause for charity or further a social cause. But in general parlance, the term business usually refers to the activities undertaken by individuals to produce and sell goods and services to gain profits. 

So now that we have an idea about what a business means, we can map out that it is an economic process of a certain kind and is subjected to numbers, 

i.e., one needs to keep track of how many or how much is being produced or sold at a particular time or over some time. 

This is exactly where one identifies the need to keep an account of everything in a systematic and detailed manner that can be retrieved at any given time. 

It can be understood that a direct correlation exists between a business and the accounting process. 

Business and Accounting

Accounting refers to the systematic and detailed process of recording the financial transactions of a business. 

The simplicity of the term 'accounting' can deceive anyone of the crucial place it holds in any business enterprise.

It plays a pivotal role in running a business helping an individual to track income and expenditure, ensuring statutory compliance, and also providing the management, investors, and sometimes the government with decisive quantitative information. 

The primary role of accounting is in the field of evaluating business performance over some time and helping in the creation of a future budget for any business organisation. 

This complex yet crucial role is managed by individuals who are professionally trained in the accounting field of various kinds, referred to as accountants. 

Hence, it is obvious that an accountant is one of the prime positions that ensure a business enterprise's smooth and successful functioning.

Bookkeeping vs Accounting

I want to clarify in the beginning that accounting is different from bookkeeping. Bookkeeping is the recording of all financial transactions in a chronological manner. 

In contrast, accounting, on the other hand, deals with complex processes of interpreting, analysing, classifying, reporting, and summarising a business organisation's financial data or records. 

Even though bookkeeping is considered the foundation of accounting, it is not the same as the accounting process. 

Categorisation of businesses

As we have understood what a business is, it must be said that business can be classified according to various criteria such as – type, size, etc., to mention a few. 

Here we would especially focus on the categorisation of businesses based on their size, i.e., small and medium-sized enterprises (SMEs) and large enterprises. 

Small and medium-sized enterprises (SMEs) are enterprises that comprise less than 250 employees, and large enterprises usually employ more than 250 individuals. 

This article will specifically deal with small businesses and the role that an accountant plays in such small businesses. 

A peek into Small Business

A small business operates on a small scale and involves less capital investment, a smaller number of employees, and fewer machines to operate daily. 

Examples of such businesses can be those industries that manufacture goods or provide services on a small scale, usually serving a limited geographical area. 

These small businesses play a crucial role in the nation's economic development. 

In such small businesses, the owner is usually the founder of the business and the one who makes the initial investment, not more than 1 crore. 

Primary examples of small businesses are – the paper industry, pen manufacturing, toothpaste manufacturing, candle-making, etc., to name a few.

The primary features of small business are that of –

  • Ownership – owned by a single owner.
  • Limited reach – a restricted area of operation.
  • Management – managed solely by the owner. 
  • Flexibility – flexible to sudden changes. 
  • Labour intensive – more dependent on manpower than technology.
  • Resources – utilise locally available resources. 

Even though a small business employs a smaller number of people, there is always room for an accountant. 

The primary reason behind this is that an accountant is one of the most important assets of a small business which helps in the smooth and steady functioning of the business in the longer run. 

An accountant might seem to be the person who assists the owner of the business in managing the entire financial system of a small business, but he is a lot more than that. 

Accountants and Small Businesses: An Untapped Potential

The accountants of small businesses are the go-to experts to whom small business owners turn when they need a piece of strategic advice about the functioning of their business. 

In a small business, accountants not only assist with the financial analysis or the integration of accounting software and compliance but also serves an advisory role on revenue growth or loss and suggest ways to improve the financial condition of the small business. 

One of the primary jobs that an accountant caters to is bookkeeping. It is an essential part of the accounting process, which needs to track the business's overall revenue and how the money is generated and compared to the monthly expenditure. 

For small businesses, accountants act as the chief operators and organisers of the entire cash flow function of the business. 

Even though it is time-consuming, an accountant will spend a fair share of time meticulously tracking a small business's finances and suggesting ways of converting a loss into a profit over time. 

In the case of a small business, an accountant also captains the organisation through the taxation process and plays an important advisory role throughout. 

Whenever it comes to the ins and outs of matters concerning taxes, finance, and accounting, it is always advisable to resort to experienced professional guidance, even for small businesses. 

In recent times, it has been seen that accountants are taking up roles that exceed the boundary of accounting, such as invoicing, projection of cash flow, etc. 

In other words, accountants are emerging to take up roles like Chief Financial Officer (CFO). 

Hence, accountants are strong assets who can leverage a small business to greater heights and are often referred to as a resource that is not tapped properly, i.e., an untapped resource. 

Many surveys have been conducted, and reports published that state that an accountant is the most trusted person an owner turns to when they need a wide range of business advice. 

This has been more evident post-pandemic period, especially with the implementation of funding given by the government to sustain small businesses. 

And it is through all these processes that an accountant helps small businesses avoid costly mistakes and manages unforeseen expenses in a way that does not incur a loss on the business. 

It has been seen that hiring an accountant for small businesses is beneficial as the money that is saved through avoiding fines and costly mistakes outweighs the cost of hiring expert guidance from an accountant. 

In the arena of small business, an accountant is expected to provide a variety of financial and advisory services to aid the improvement of profit-making and leverage the scale of a small business, then offer bookkeeping and accounting services. 

Accountants now have a dynamic range of contributions to small businesses, such as  

  • Planning of tax – There are a variety of tax planning and implementation strategies that accountants know of, such as – accelerating expenses or holding off, accelerating income, or establishing a retirement account – which can help a small business to lower their liability of tax and help them to save more money.
  • Managing cash flow and budgeting – Accountants in a small business can develop cash flow projections by analysing the expenditure and helping to balance the budget and debts incurred. This will surely lead a small business to the road to success. 
  • Processing of payroll – Payroll is a particular aspect of managing a small business that poses to be a challenging and complex arena, especially for the owners. It is only an expert like an accountant who can meticulously chalk out payroll deductions without getting them wrong. 
  • Assist in choosing a structure for the business – An accountant plays a significant role in selecting the right business structure which suits a small business, i.e., LLC or sole proprietorship. This impacts the taxation that a small business is subjected to and the paperwork related to it. Hence, an accountant and a small business owner play a decisive role.

Besides these, an accountant proves to be a valuable asset to a small business in terms of – business consulting, accounting software recommendations, preparing accounting statements, benefits of employees, and issues related to Human Resource Management, etc. 

In short, the role of an accountant in small businesses is not only restricted to guidance for big things, such as audits, business strategies, and records management. It will also help a small business figure out how to grow its business. 

It can be rightly said that hiring an accountant is a great help to small business owners in terms of managing their accounting functions and back-end financial matters, 

As the accountant will not only help in navigating the financial challenges faced but will also avoid costly mistakes on the part of the small businesses as accounting practices can be both time-consuming and stressful on the part of the owner. 

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This article deals with the very notion of what a business is and how accounting, especially an accountant, plays a pivotal role in business activities, especially small businesses. 

It also discusses in great detail the role that an accountant plays in small business firms and their dynamic contribution to the daily functioning of a small business. 

The key takeaways from this article would be the various ways through which an accountant helps a small business, which might be noted as follows – 

  • Growing the small business in the right way.
  • Increase profits and reduce expenses.
  • Making sure that the small business can comply with the government in terms of taxation.
  • Getting the bigger picture right.

Hence, hiring an accountant for a small business is a smart move as the accountant not only helps in saving time and taxes on the part of the business but also provides a variety of functions to the business enterprise.

FAQs related to What does an accountant do for a small business

1. What do you mean by small business?

A small business operates on a small scale and involves less capital investment, a smaller number of employees, and fewer machines to operate daily. Examples of such businesses can be those industries that manufacture goods or provide services on a small scale, usually serving a limited geographical area. These small businesses play a crucial role in the nation's economic development. In such small businesses, the owner is usually the founder of the business and the one who makes the initial investment. 

2. Is accounting important for a small business?

Accounting is a crucial process for every kind of business organisation, especially small businesses, as it not only helps in the systematic and detailed record management of the small business but also helps it to grow to bigger heights. 

3. Should small businesses have an accountant?

Yes, it is smart to hire an accountant for small businesses, as they not only prove to be a strong asset by saving time and taxes but also help the business to leverage to greater heights in the longer term.

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