Being a business owner means that there are many odds and ends that you will have to keep track of. We here at Interactive Accountants have found this especially true when it comes to financing a business. While there are some universal needs that all businesses have, we have seen a pattern of expectations not always matching the needs of a business. This is not to say business owners are not in touch with their business; rather, the shift of interest occurs on our end with what our clients think they want from us versus what we would recommend.
Some of the more general services that a business needs from their accountant are the obvious ones like filing taxes, keeping your finances on the right track, and even keeping you personally updated on your taxes and what is happening in the world around you. There are some major variables that a business needs to be made aware of if they want to thrive in our current market.
One of the biggest discrepancies between expectation and reality we have seen was, in truth, a little surprising, mainly since this issue was hiding in plain sight. The issue is technology, specifically how different businesses need to keep up with changes in tech while simultaneously knowing when to pick their battles. What we mean is that in the increasingly digital world you and your business are operating in, there are many technological facets that we have seen a lack of education on. Before you think "of course, technology is evolving", we are not talking about installing apple pay at the front register. In this article, we will talk about new forms of accounting and system tracking. Formats such as accrual accounting have seen some changes in the tech side of its operations, and it can be confusing.
We have seen discrepancies between what businesses expect versus what they need because accrual accounting is completely digital and partially theoretical. To give some context, Cash-based accounting is done when payroll and expenses have already been taken out of your primary balance. Accrual Accounting is done a bit more asynchronously because it is done as the money is earned regardless of whether or not it has been paid. Where cash-based accounting records everything after it's said and done, accrual accounting is based on when you receive an expense, not when you pay it.
When you combine a digital Market with a potentially hypothetical form of record-keeping, it can become easy to think the numbers are different than they are. This goes back to what we previously mentioned about businesses having a good idea of what they want and should do for their business. As a CPA firm, we know some needs that certain businesses may have that they may not even realize existed. We wanted to take this time and explain accrual accounting because we have found that it is becoming increasingly popular.
When done digitally, it is a faster way to keep records because most software coming out now is partially aware of the patterns that a business will see in general. Of course, depending on the nature of your business, your monthly earnings may vary, but there is still a general format that can be expected, and it's these expectations that software is now being driven by.
To give a very simplified example, let's say you earn $1,000 a month, and of that thousand dollars 200 goes towards expenses, another hundred goes towards taxes, and the rest is put into a checking account but may be used at a different point. The real function of accrual-based accounting software is to essentially make a calendar of what your business is expecting to happen. If the reality of your business does not match what this software expects, you need to take the time to be aware and fix the differences.
This reality creates two main scenarios. The first is that you, as a business, either internally or externally, use an accountant to keep track of these numbers. Or you try to use these software's independently and function with them the best you can. We are not here to tell you which option is right; we are here to tell you that it is very advisable to get consulting with your CPA and other financial advisors to help keep track of this new method of record-keeping. We even acknowledge that this advice may seem generic or obvious, but we simply want to make you aware of the environment you are in. As we have mentioned previously, the growing shift towards digital that the business world is taking will create a few bumps in the road along the way. The only real way to set yourself up for failure is to not make an effort to learn and grow.
We here at Interactive Accountants take the time and effort to understand the changes in the digital and financial realms so that you don't have to. When it comes to the expectations of your business versus what your business needs, we want to take the time and do the research to set yourself up for the best possible scenario. Regarding accrual and cash-based accounting, each business will do it differently. We, as accountants, can make life a lot easier by helping advise on the way. After all, that's what we like to do, and we like to help people and their businesses; while it might be filtered through taxes and bureaucracy, the core of what we do here is to inform and help our clients.
Individually we would love to consult with you and your business to help create an effective business strategy to address your individual concerns and help you succeed. Here at Interactive Accountants, assisting businesses to grow and succeed financially is our number one goal. We are here to help because the better you do, the better we all do! If you're still not convinced yet to give us a call, feel free to look at our other blogs regarding the help we offer various businesses and offices.
If you are a professional in any field that these tips apply to, schedule a free consultation here with our owner Matthew Shiebler, CPA. He's been practicing accounting for over 25 years now and is a business owner, just like you!