Formal accounting procedures not only ensure accurate financial statements, but they help your business avoid costly mistakes.
Without proper accounting procedures, accounting errors – varying in magnitude from a ‘quick fix’ to ‘a costly disaster’ – will regularly occur. These speed bumps can stop a business in its tracks if an owner or management team cannot pinpoint the issue and fix it in a timely manner.
Most small and new businesses operate for years before they establish and follow formal accounting procedures. This lack of a formal process results in inconsistent procedures across departments and, as a result, similar tasks end up yielding different accounting data.
Businesses with consistent and accurate financial reports heavily rely on their accounting procedures. These procedures are the cornerstone of any business’ financial operations for the following 3 reasons:
1. Reduce Business Costs by Mitigating Reporting Errors
When reporting errors cannot be pinpointed by management, businesses incur significant time loss and likely incremental costs (e.g.: third-party advisors, accounting system upgrades, and employee training) to correct the issue.
2. Promote Uniformity and Consistent Reporting
Established and uniform accounting procedures across each department ensure accurate reporting. Accurate financial reporting is essential for any business owner to make important business decisions.
3. Enforce Internal Controls
Internal controls set the tone of an organization’s financial operations. Accounting procedures are designed with internal controls in mind, and they also promote GAAP and regulatory compliance, which can prevent employees from stealing assets or committing fraud.
Implementing accounting procedures seems unnecessary for most business owners, but the benefits far exceed the investment costs. Knowing your company has a process for every type of transaction can not only improve business operations, but also impact the bottom line.
If your business needs an advisor to help you formalize and establish accounting procedures in your business, please contact us at [email protected].