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I have a recent talk with my aunt who works as an accountant in Dubai, UAE regarding why does my business need accounting. Here are her thoughts!
You need accounting to make accurate predictions for the future
As a business man, your top objective is to make compelling predictions about the future in a way that it attracts others to work on a shared vision (your business vision) that will change the society in some way. If you don’t have yet business objectives, please work on this right away.
In a sense, businessmen can shape the needs and desires of customers and transform raw materials in a way that can make an impact in the society. You as the business owner make predictions through three basic projections:
- Future revenues
- Future operating costs
- Assets needed to service the future demand
Accounting is your go to guy here. It can help you a lot because it give us analytical tools to make predictions and a link to what can we expect to happen in the real world.
At the first stage of the business, projections can unite a team (you and your employees) by making the vision more concrete, actionable and measurable. You can do this on your own or with your business partners. You set the business’ objectives, goals and strategies.
In the middle stages of the run, financial statements measure, whether earlier predictions were accurate. Trends in sales and costs can be projected in the future. The past or earlier results of sales strategies and a measuring of today’s sales lead will make it easier to predict future’s revenues. You at least have them in your glimpse. Accounting will help you see tomorrows and know or see issues that the business may encounter the next days.
Accounting helps you to make the right commitments
Why do businessmen make commitments? Yes, they do this to build capacity to service the future demand as well as to invest in assets that will lower operating costs. As a business owner you need to make commitments in time, energy and money for you to design and build sales funnels or processes that may attract and close customers and delivery processes.
In general, businessmen make four types of commitments:
- Sunk investments in long-lived or fixed assets like a machine or building
- Promises to pay a fixed amount over time to use a fixed asset (rent or salary)
- Borrowing money to expand the business
- Making working capital investments like inventory or customer credit that eventually will be sold or recovered.
Analysis and projections on cash flow will help you place a value on different commitments. So be sure to study things carefully and weigh your options over the others.
Accounting helps you to measure progress
With the use of accounting tools, you can monitor the progress and make necessary changes or adjustments for the business.
By accurately measuring results, you can reward top performers. What is measured gets done, and people who know they will be held accountable make better predictions and more productive.
Measuring your progress in a way that links business profits and processes helps you become more productive, because it allows you to highlight “praise” and “headache” areas. Tying expenses to those responsible for them and sharing information helps in preventing frauds and will keep your investors, business partners and employees informed. Transparency leads to more trust and a stronger sense of teamwork.
The top benefit of accounting in measuring your business’ progress is that it will help you to spot trends in revenues and costs early. Earlier in the sense that opportunities can be exploited and problems may be fixed before they pose a real threat for the business.
I know. These maybe some kind of technical stuff, but the key point here is that accounting will help you to predict the future (will you gain more revenues or start losing money), land the important and best commitment available and you can see the growth and spot the black areas making an early adjustment before it hits you hard. Without accounting, the business has no map to follow, no guidelines to observe and no magic device to predict the future. Accounting is your best buddy!
TAGS: Accountants in Dubai, Accountant
