Importance of Accounting for Business Success

Welcome to the first of our two-part series on ‘Managing Your Business Finances’. In this post, we highlight the importance of proper bookkeeping and accounting, what you should know when keeping track of transactions, and unique insights on the topic from our panel of business owners and accounting experts.

If you’re a first-time entrepreneur, you may be wondering why proper accounting is so important and whether it can be made simpler.

The truth is that a proper set of accounts can tell you the financial health of your business. This can help you make the right business decisions while avoiding pitfalls ahead.

To help you make sense of business accounting, we spoke to our panel of successful business owners and leading account experts to bring you their insights on the topic.

So without further ado, let’s jump in.

Keeping Accounts In Good Shape

If you have zero knowledge of what is accounting and why it is important, we sum it up in four points. Essentially, accounting tells you:

Some business owners don’t keep proper accounts. Often, they just work out the difference between their bank balance at the beginning of the month and at the end. While this is a quick and easy way to get a rough sense of your financial position, it’s woefully insufficient as there will be a time gap between paying for your inventory / supplies and getting paid. Without proper accounts, you can’t see the pitfalls lying ahead in your business.

Mr. Lawrence Chai, CPA and Managing Director of 3E Accounting, said: “The purpose of bookkeeping goes beyond submissions to government and regulatory agencies. Practising proper bookkeeping from Day One helps the entrepreneur understand the financial health of his or her company, anticipate additional funding requirements, and conduct data analysis of the accounts to help make sound business decisions.”

Successful entrepreneurs recognise the importance of accounting. Mr. Desmond Lim, co-founder and executive director of DNA Medical Supplies — which supplies healthcare and medical products to clinics in Singapore — felt it was so important, he took up a course to learn how to use his accounting software. “I am not trained in finance, but I know the basics. The course taught me how to use the data for making better decisions.”

From Spreadsheets to Accounting Software

Most business owners we spoke to started out using Microsoft Excel to do their accounts. While there is nothing wrong with that, most businesses eventually turn to proper accounting software to save time, cut down errors, automate reports and get more insights on their business.

Dr. Gloria Kong — who owns the Kong Dental chain of dental clinics in Singapore — shared one of the pitfalls of not going digital. In the past, she used to send chequebook stubs to her accountant for reconciliation regularly.

She recounted, “You might think it will never happen, but once we almost lost the bag of stubs. It made us so worried because then you won’t know who you issued the cheques to and who has encashed the cheques. I have learnt a lot through this episode.”

Don’t wait till you have a ton of transactions to get started on, then you may need to spend time and money to migrate data. Try an award-winning accounting app for free now, with the Start Digital Pack from OCBC.

Leave It To Professionals

If you are too busy running your business to do your own bookkeeping and accounting, outsourcing is the answer.

Dr. Kong shared her experience with us. “I have some accounting knowledge so in the beginning, I did it myself. Now that I have four clinics, the volume of transactions has grown and I am spending more and more time managing the business, so I have an accountant to come in once a week to look over my accounts.”

Marc Goh — founder of digital marketing agency Design Prodigy — emphasised the importance of engaging a high-quality accounting firm, noting that, “You will have a lot of frustration if the numbers are not right. The numbers are not useful if they are not right.”

With so many accounting firms out there, how do you choose?

Lawrence of 3E Accounting says, a good accounting firm provides business advisory support beyond accounting. “Based on the analysis of the client’s accounting needs, a good accounting firm will recommend and provide additional corporate services such as tax planning, HR, secretarial, and data protection, as well as facilitate growth and overseas expansion of branch offices.”

Best of Both Worlds

Many businesses which outsource their accounting use cloud-based accounting software with the support of their accountant. Lawrence explained the benefits.

“Cloud-based accounting solutions allow real-time access to accounts for the client and his/her accountant. This facilitates better collaboration between client and accountant, as the software is able to generate customised analysis reports and connect to other software, thereby improving productivity.” What this means is that updated information is available at a click of a mouse — without waiting for the next meeting with your accountant which could be a month away.

Rounding Things Up

For businesses, the importance of keeping proper accounts cannot be overstated. To make their lives easier, business owners can leverage accounting software solutions to keep their books in order.

Beyond software, the right accounting partner can also make a world of difference to a growing business, so consider engaging the right help when your business needs it.

Read on to learn more about cashflow management.