Any business no matter how small would require some form of accounting; be it a vendor selling items on the street who keeps a record of his sales or a multinational company which keeps a track of its inventory and growth. With a worldwide increase in compliance burden and complication in tax regimes, utilization of business accounting services has now become a need for corporations rather than a want. Furthermore, business accounting services provide companies the ideal platform to assess their current performance and optimise growth strategies.
These accounting services include bookkeeping which involves recording the dates and amounts of each revenue and expense for the company. This is then consolidated into the company’s financial statements that are the Profit and Loss Statement, Balance Sheet and the Cash Flow Statement.
Business Accounting Services – Importance of Financial Statements
The Profit and Loss Statement shows whether the company made money or lost some in a given period. It indicates the company’s sales which can then be compared to historical revenue figures. This also shows the revenue trend over the years, along with its market share. The company can then look into factors which might have caused this change in sales; suppose a change in fashion for a textile company.
This gives the company a future plan of how to go about its operation, for example, produce more of the item which is in demand. This could help increase its revenue further. Therefore business accounting services can play a key role in business planning. The statement also shows expenses against these revenues. These include payroll, marketing, depreciation and taxes.
Payroll taxes could in certain situations be quite complicated and inaccuracy in these may cause severe fines for the company. That is why acquiring business accounting services could be essential for a company to handle these taxes efficiently. The state in certain situations requires employers to withhold income taxes, and in other situations payroll taxes are levied on employers directly as a proportion of the salary payout. To avoid any legal issues, it is recommended that employers utilize the services of professional accountants.
The Balance Sheet lists down the Assets, Liabilities and Equity of the firm and thus shows the financial position of the company on a specified date. Business accounting services use the Balance Sheet to calculate several ratios which are critical in assessing business performance. For example, return on equity or ROE shows how efficiently the firm uses investment to generate profits. This provides action plans for the company e.g. a high ROE is indication that funds should be reinvested in the company as this would trigger faster growth.
Return on assets gives an indication of how profitable the company is before leverage. This is used to compare performance of companies in the same industry since they would have similar capital structure requirements.
The current ratio is used to assure smooth functioning of the company since it indicates if the firm has enough resources to settle its debt in the next 12 months. Gearing shows the financial leverage of the firm. It measures equity against borrowed funds. A highly geared firm is at risk of business cycle downturns. Although business would be restricted and the firm’s earnings would be low, they would still be obliged to pay off their debt obligations.
This gives rise to forecasting and future planning which is again a part of business accounting services. Past data and external economic factors are considered to draw a picture of how the company would perform in the upcoming years. This can then be used as a benchmark to strategize and plan for the future. This is crucial in today’s competitive environment as companies need to plan well in advance to be ahead of the curve.
Mergers and Acquisitions
Accounting services also provide valuation of the company. Suppose Business XYZ is planning to acquire Business ABC. XYZ can then hire an accounting services firm to prepare a valuation of ABC. This way, XYZ will have an accurate idea of ABC’s value and avoid paying a higher price. Business accounting services can also be used if a company is planning to sell itself. The company can again hire these services to get an accurate valuation and thus will refrain from undervaluing its assets.
It is thus critical in today’s day and age to use accounting services. Regardless of the size of the business, it is a crucial requirement to avoid any legal issues and to stay competitive in the market. It provides an accurate picture of the company shows trends of how the company has performed in the past and sets this as a platform to predict its future performance. Ezcfo located in Newark, NJ is an excellent provider of business accounting services. They can be reached at (800) 964-5156.