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Why Accounting is Important in Business

— August 4, 2021

Simply put, an accountant is as important for the health of your business finances as a doctor is for your own health.

In order to understand why accounting is so important, you first need to understand three basic accounting processes. These are:

  • Collection of financial information
  • Processing of financial information
  • Communication of financial information

All of this happens through a series of complex procedures, and it sometimes requires the use of specialized accounting tools. Unlike bookkeeping that can be handled through a cash book, accounting requires more complex forms and provides more insight.

Still, what are the main reasons why accounting is so important for the day-to-day functioning of a business (of any size)? Let’s find out!

Accounting Vs. Bookkeeping

One of the biggest points of confusion when it comes to accounting lies in the fact that a lot of people don’t know the difference between accounting and bookkeeping.

The truth is that bookkeeping is just one of the tasks of accounting. A bookkeeper merely tracks all the transactions made by a business or an individual. For instance, a bookkeeper would keep track of vendor payments, payroll, bills, etc.

As we’ve mentioned, the accountant prepares the accounts and tax returns, monitors spending, and analyses the financial performance of an enterprise. In other words, an accountant has more of an analytical and advisory role. Some would even go as far as to say that a bookkeeper is a clerk while an accountant is a specialist.

Every accountant is also a bookkeeper, but not every bookkeeper is an accountant. In the majority of enterprises, a bookkeeper’s work is supervised by an accountant. In fact, it’s not uncommon for a larger enterprise to have several bookkeepers and a single accountant in their in-house accounting department.

Tasks of An Accountant

Budget paper and pen with silhouettes of two men walking away from each other and the word “Tax” in bold red letters; image by Geralt, via
Budget paper and pen with silhouettes of two men walking away from each other and the word “Tax” in bold red letters; image by Geralt, via

To understand why accounting is such an important thing for a business, it’s crucial that you know some of the most relevant accounting services. Some of these are:

  • Preparing for tax returns
  • Tracking spending
  • Analysis of financial performance
  • Risk analysis
  • Financial forecasting
  • Presenting financial and budget reports

Each of these tasks is beyond the scope of a regular bookkeeper, seeing as how it takes a specialist’s insight, high level of financial analysis proficiency, as well as advanced accounting tools. While there are a lot of accounting tools that can make this job a lot easier, the truth is that you still need a professional accountant to use their full potential.

Cash Management

The problem with cash management lies in the fact that many entrepreneurs see no difference between income and cash.

You see, while account receivables are income, you need to wait and collect them to turn them into cash. An invoice that hasn’t arrived yet is something that you can count on, but it’s not something you can use in order to pay your vendors, employees, rent, etc. Sure, you could sell an invoice to get some of the money right away, but factoring is a different topic.

A reliable accountant can help you prioritize your tasks and expenses so that you achieve much better cash management. Your company’s cash management affects its reliability and even its resilience in the business world. A lot of logistical problems can be averted if you have some cash to burn.

Doing Things by the Book

Financial and legal responsibilities always go hand in hand. In other words, by using the services of an accountant, you’re not just keeping your enterprise afloat; you’re also keeping yourself out of jail. In fact, the majority would agree that having a great accountant is just as important as having an experienced business lawyer by your side.

Still, there’s more here than just satisfying the word of law. Even as a small business, you may have to submit regular reports to your shareholders/members if you’re running as an LLC or a corporation. This is something that the trust within the company may depend on, as well as its internal unity.

Another thing you need to keep in mind is the fact that your own honesty is not the only point of concern. No matter how much screening you do, employee theft is always a risk that you’ll have to accept. With the right accountant/accounting firm on your side, it will be far less likely for something like this to go unnoticed.

All in all, excellent accounting creates a strong system of accountability within your enterprise. It becomes a lot easier for you to hold your employees accountable and for your shareholders to hold you accountable. In the end, everyone can sleep better at night.


Perhaps the biggest misconception of the business world is the idea that, for some reason, you need to have great intuition to make it. Sure, intuition helps quite a bit, but gut feeling is the last thing you should base your decisions on. Instead, you want to make data-based decisions at all times.

As we’ve already mentioned, an accountant helps prepare your budgets, audits your financial performance, and makes financial forecasts. Other than this, they have an advisory role within a business, suggesting a preferred course of action or warning against risky/financially damaging behavior. When preparing to make a financial decision, one of their tasks is to conduct an extensive risk assessment.

In the end, while the decision is yours, they’re the ones helping you see this decision as objectively as possible. It’s their job to help you see this decision through data/numbers so that you have a much better clue of what awaits you should you make this particular decision.

Long story short, a great accounting process makes your decision-making more consistent and reliable.

In Conclusion

Simply put, an accountant is as important for the health of your business finances as a doctor is for your own health. The accountant is there to collect all the relevant financial data, process it, and turn it into a report that consists of actionable information. They are there to honor all the proper forms and turn all these numbers into information that you can actually use in your decision-making process. An accountant is a specialist that focuses on the financial lifeline of your enterprise. As such, their role in your organization is invaluable and indispensable.

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