Businesses today are operating in a different world compared to only five years ago, the need to properly manage cash flow, to understand profitability, and to plan ahead from a tax standpoint are much more important now than ever before. We believe so strongly in the need for entrepreneurs to make decisions as they occur in their businesses that our firm updates our clients accounting records each and every day instead of monthly or even worst on a quarterly basis. Think about how technology has rapidly changed for retailer businesses, determining if your business is generating a profit through Amazon vs. eBay is critical for your business in a fast pace mobile technology world. The need for real time financial information is not only segregated to retail business, even service business like attorneys, consultants, and creative agencies need to understand how well their business is performing on a daily basis In this article, we will explore some of the major benefits of having a Real Time Accounting system in place.
Managing Cash Flow:
Keeping an eye on everyday costs is critical for your business survival, understanding if you have sufficient cash to meet payroll or make an important purchase throughout the month is vital. We recently wrote an article on how to effectively manage cash flow, and how to generate and analyze a Cash Flow Statement. As we discussed in our previous article cash flow can be different from profitability meaning, you can generate a profit but have very little cash in the bank account. Therefore, understanding your cash flow based on real time accounting information is critical for your business future.
Many entrepreneurs look at the Profit & Loss Report very closely in order to understand how their business is performing, including their sales trends, what expenses they incurred, and how these affect their bottom line. The Profit & Loss Report benefits greatly from real time accounting because it allows you to see at any point during the month how the business is progressing, and even providing great comparisons opportunities with prior months in order to see if you are doing better or worst.
Maximizing the accountant’s role:
With real time accounting we (accountants) become better advisors to our clients, we can provide advice for our clients based on fresh and updated information and in some cases even spot and avoid issues. Here is one example: by updating one of our client’s accounting record on a daily basis we notice and proactively flagged a series suspicious transactions that were fraudulent in nature, this reduced our client risk exposure to additional fraudulent activities and possibly prevented their identity from being compromised. Try to accomplish that when you just update your financial records on a monthly or quarterly basis.
Plan ahead for tax season:
One of the biggest challenges and stressors for most entrepreneurs is properly preparing for tax season before April 15, it is not uncommon for us to meet with business owners that lament of being blindsided with huge tax bills because of not having received proactive tax advice during the year. In order not only to prepare for tax season before April 15th but most of all to find ways to save money on your tax bill you need a plan, and be able to work with your accountant to proactively implement tax saving strategies during the year. In order to do that, you need real time accounting information, with monthly or even worst on a quarterly basis you simply do not provide the information needed to implement proactive tax saving ideas.
Real time accounting is crucial for your business for many different reasons, not only to help you understand how your business is performing, and managing cash flow, but also to help you reduce your tax liability and avoid the dreaded tax surprise.