Stupid Tax #3 - Accounting: What Is It Good For Anyway?
Accounting, as Scott Hambrick says, is the scientific method of business. It's a process of data collection and testing hypotheses about how your business works. For Mitchell Baldridge, CPA, accounting is about the numbers -- debits, credits, chart of accounts -- but it's also about so much more. Accounting is not just about tracking the dollars that go in and out of the business, it's about tracking the precursors to those dollars: sales calls, proposals, engagement letters, etc. Properly done, accounting gives you invaluable information about the types of activities that make your business function, and which activities are the most valuable for your business.
A business' need for accounting grows with it's revenue and operations. The young man just starting his power washing business doesn't need audited financial statements and complex chart of accounts for tracking income and expenses -- he needs to worry about making sales! When there's money coming in the door, then he can start tracking and making a basic profit and loss statement. For most people starting out, this is not much more complicated than what it says each month on the transaction log on the bank statement. However, as the business begins to grow and employees are added, and more complex projects arise requiring various costs and inputs, a good accounting system becomes critical to ensuring that the business is both cash flow positive and also deploying its resources in the most efficient manner.
Get in touch with the hosts!
Mitchell Baldridge
Twitter: @baldridgecpa
https://baldridgefinancial.com
Scott Hambrick
Twitter: @hambrickscott
IG: @ogscotthambrick