Good accounting improves business competitiveness

Salford Business School

Image by University of Salford via Flickr

BY PHILLIP CHICHONI

The managing director of Swiss bank, UBS,  is in trouble. The board wants to fire him for allowing over US$2 billion to be lost through the hands of  rogue trader Kweku Abodoli. One of the largest financial institutions in the world, UBS’s financial control systems failed to detect fraudulent activities and suffered a huge loss as a result.

I asked a number of small business owners if they knew how much money they were making each year. Frighteningly, the majority did not know exactly. As long as there was cash in the bank, they did not bother themselves with much else as regards the financials of the company. So if an employee finds a way of defrauding them, they would have no way of detecting it.

Lack of accounting and financial control systems is a big problem among SMEs. They cannot measure their success, growth and efficiency. With no budgets and cash flow management systems, business decisions are made in the dark and on an ad-hoc basis. An accounting system helps in managing finances, maximising returns on investments while improving the competitiveness of businesses.

Your accounting system should provide an accurate picture of your business and how it is performing. Setting up a good accounting system and understanding the numbers produced can make a major difference in how your business fares in the long run. The financial statements produced from your accounting system will help you in several ways.

HOW TO KNOW IF YOU ARE REALLY MAKING MONEY

A good accounting system should tell you how much money you are making in terms of total sales, the cost of the goods sold, expenses and net profit. Success in business is measured in financial terms. The financial results at the end of a period will reflect how successful the business was in the given period. Comparing the financial results over time will show if the company is growing and improving in efficiency.

via SME Chat:Good accounting improves business competitiveness.

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