Whether you're running a small startup in your local community or managing a global giant like Google or Amazon, one thing remains true: accountants are an essential component of every successful enterprise. While many understand that businesses of all sizes rely on accountancy, few grasp the full extent of its importance. In this blog, you can delve into the critical role that accounting plays in the success of corporations, providing eight compelling reasons why top accountants in London are indispensable.
What is Accounting?
At its core, accounting involves keeping a detailed record of financial activities and relevant resources. It also encompasses everything from tracking daily expenses and income to preparing complex financial statements. Hence, the individuals responsible for performing these tasks are known as accountants.
Types of Accounting
There are various types of accounting, each tailored to specific industries and purposes:
- Financial Accounting:
Financial accounting is typically the most common and focuses on generating reports like balance sheets, income statements, and cash flow statements. It also adheres to GAAP (Generally Accepted Accounting Principles) and provides standardised financial information for businesses, individuals, and non-profit organisations.
- Management Accounting:
Management accounting provides essential financial data for a company's management team. It generally assists in high-level decision-making, helping executives assess a company's financial health and resource availability for optimal strategic planning.
- Public Accounting:
Public accountants in London, UK, specialise in preparing organisations and individuals for tax filings, financing, and interactions with financial stakeholders. They provide expert financial consulting services and diligently ensure adherence to regulations set forth by governing bodies like the IRS.
- Governmental Accounting:
Governmental accounting is a facet of accounting that focuses on managing the finances of major government entities. It strictly adheres to the standards set by the Governmental Accounting Standards Board (GASB) and deals with unique financial assets and liabilities specific to the public sector.
Top Reasons Why Corporations Opt for Accountants
We cannot overstate the significance of accounting in the ever-evolving corporate world. Accountants in London are the financial architects who meticulously manage, analyse, and interpret financial data. Their role extends beyond just crunching numbers. In short, they are key decision-makers and strategists who help corporations thrive. Let's explore the eight vital reasons why accountants in London are so crucial to the success of corporations in the UK.
- Evaluates Business Performance
Financial accounting can be considered a barometer of a company's financial health. Business owners can effectively and precisely gauge their profit or loss through these reports. In addition to that, key performance indicators (KPIs) offer insights into various aspects of business performance.
These KPIs allow businesses to assess their historical performance and compare themselves to competitors. Regularly reviewing financial reports empowers business owners to identify potential issues and bottlenecks early on, enabling prompt corrective actions.
Did you know that in 2020, the global accounting software market was valued at a staggering $12.01 billion, with projections soaring to $19.59 billion by 2026, signifying an 8.5% CAGR from 2021 to 2026? These reports enable business owners to meticulously gauge profit or loss over time, which also helps identify issues early on.
- Create Budget Projections
Budgets are a lifeline for businesses and help keep every department's spending on track. They help managers focus on the big picture by allocating funds to objectives that drive expansion. Effective budgeting also improves everyone's understanding of the company's broader goals. In fact, in 2020, 82% of accountants noted that clients demand a broader range of services today, emphasising the need for efficient budgeting and resource allocation.
Without proper budget control, businesses risk financial inefficiencies and perpetual problem-solving without understanding the underlying causes. Accurate accounting and budgeting prevent financial chaos and ensure optimal resource allocation.
- Maintain Financial Statements
In the UK, financial statements serve as the cornerstone of financial accounting. Every business is obligated to file these statements for taxation purposes, offering a thorough record of the company's fiscal activities. Through the scrupulous documentation of transactions, financial accounting grants businesses access to precise historical data. This invaluable data facilitates trend analysis, empowering companies to evaluate their long-term performance effectively.
These statements, required for tax filings, provide a historical record of financial transactions. They enable businesses to analyse trends and measure their success over time, aligning with the belief of 83% of accountants that investing in technology and digitisation is an absolute necessity to keep pace with the market.
- Facilitates Decision Making
Financial records support decision-making at all levels of an organisation. Managers use financial information pertinent to their areas of responsibility to make informed choices.
Even seemingly minor decisions can have a substantial impact on profitability and efficiency. Accurate reporting simplifies decision-making, enabling management to prevent mismanagement and losses. Interestingly, only 38% of accountants believe that current accountancy training programmes will remain relevant by 2030, indicating a recognition of the evolving demands in decision-making.
- Ensures Statutory Compliance
You probably already know that different states and countries have varying laws and regulations. Proper accounting procedures and systems help businesses operate within the bounds of the law. In 2017, accounting services contributed an effective £21.1 billion to the UK GDP, underscoring their role in maintaining comprehensive compliance and economic stability.
Accounting departments are responsible for ensuring compliance with regulations. It also includes sales tax, VAT, income tax, and pension funds. Moreover, compliance is a legal requirement and a vital part of ethical business conduct.
- Facilitates Investments and Loans
Business expansion often requires external financing. Both lenders and investors heavily rely on a firm's financial records to assess its creditworthiness.
Accounting measures, such as the debt-to-equity ratio extracted from financial records, help creditors gauge risk. This information influences decisions on loan amounts and interest rates.
- Manages Liquidity
Poor cash management is a significant contributor to the failure of many small businesses. Insightful accounting reports provide insights into a company's liquidity, helping business owners understand their cash flow, outstanding debts, and obligations.
These insights are imperative for preventing financial emergencies and, to a great extent, bankruptcy. Effective liquidity management keeps a company agile and prepared for opportunities and challenges.
- Measures New Strategies with Hard Data
Before implementing a significant change, businesses often conduct risk analyses. However, post-implementation evaluation is equally critical. Accounting provides the necessary data to assess the impact of changes on revenue and costs.
To prepare for the next decade, 74% of accountants reviewed their business practises last year, outlining the vast importance of data-driven strategy assessment in business. In short, businesses can determine whether a strategy was successful by comparing financial data before and after implementing changes. This empirical approach allows for informed adjustments to optimise results.
How does Accounting Impact Business?
Accounting, often viewed as a mundane and boring aspect of business operations, wields a profound and multifaceted influence on the vitality and success of an enterprise. Its impact extends beyond mere number-crunching, touching every facet of a business, from financial health to customer trust. Let’s learn more about the four primary dimensions of how accounting profoundly affects a business:
- Improving Financial Health
At the heart of accounting is the meticulous tracking and management of financial transactions. This function significantly contributes to enhancing a business's overall financial health. By systematically recording expenses and incomes, accounting offers a comprehensive view of a company's fiscal landscape.
According to a recent report by Sage, 91% of accountants believe that accounting technology has increased productivity. Its enhanced productivity translates into more accurate financial records and better financial health for businesses.
- Increasing Confidence
Trust is a cornerstone of successful business relationships with customers and employees. With that said, sound accounting practises contribute significantly to fostering confidence in an organisation. When a company demonstrates transparency, honesty, and responsibility in its financial dealings, it in turn garners the trust of its stakeholders.
A survey conducted by AccountancyAge in 2017 found that 35% of self-employed contractors consider making mistakes during accounting tasks the most stressful aspect. It also emphasises the importance of accurate and trustworthy accounting practises in maintaining stakeholder confidence.
- Safeguarding Against Liabilities
Financial liabilities can pose significant risks to a business. Accounting serves as a protective shield against these liabilities by creating a robust financial safety net. This safety net encompasses several crucial aspects:
- Proper Tax Compliance: Tax regulations can be complex and highly subject to change. Best accountants in London ensure that a business complies with tax laws, reducing the risk of penalties, audits, or legal actions.
- Financial Planning: Accountants help businesses plan for the future, anticipating potential expenses and financial challenges. This proactive approach minimises the risk of financial crises and insolvency.
- Fraud Prevention: By maintaining rigorous financial records and conducting audits, accounting can detect and prevent fraudulent activities within a business. It safeguards the company's assets and reputation.
- Keeping Accurate Records
Accurate record-keeping lies at the core of accounting's impact on business. It serves as a historical archive of financial transactions, offering several advantages:
- Regulatory Compliance: Government agencies and regulatory bodies often require detailed financial records for compliance purposes. Proper accounting ensures a business meets these requirements, avoiding potential legal issues.
- Historical Data for Decision-Making: Historical financial data provides valuable insights for making strategic decisions. Whether assessing a new project's feasibility or evaluating past initiatives' success, accurate records are indispensable.
Speak to us
For businesses in London and across the UK, expert accounting services are essential to navigating the complexities of the financial world. We, at Unicorn Online Accountant, are a trusted partner for your accounting problems. Our team offers a range of accounting services that meet the specific requirements of businesses in this dynamic environment. We also provide pocket-friendly cheap accountants in London who help you achieve financial excellence and propel your corporation to new heights. Contact us today to discover how we can help you.