The business world needs accountants more than ever, and it’s crucial to understand why. Accountants and accounting divisions allow organizations to grow and flourish financially and are a cornerstone in any industry. First, we’ll jump into a general overview of accounting.
There are two primary forms of accounting: financial accounting and managerial accounting.
Financial accounting is based on information companies make public to stockholders, creditors, suppliers, customers, and regulatory commissions. It involves recording, summarizing, and reporting transactions and other financial activity specific to the company over time to the public or regulators.
Managerial accounting focuses on information not publicly available and involves identifying, measuring, analyzing, and communicating financial information to decision-makers to help accomplish a company's goals. This includes salary costs, profit targets, the cost of goods produced, and other similar information for department heads, managers, and supervisors to help them make informed decisions about daily business operations.
Overall, accounting acts as a guide for an organization that holds tight to generally accepted accounting principles (GAAP) and eliminates the possibility of fraud and other poor business practices when enforced correctly. Accounting also serves as a looking glass for a company's financial health, aiding future prosperity through informed decisions.
Four reasons we need accountants more than ever
Businesses that have survived the pandemic often navigated financial hardships. Many companies have struggled to financial demise and have either closed or considerably restructured. Accountants are essential for reassessing a company's finances and making accurate financial recommendations on when/how businesses can move forward.
Globalization and small business reliance
99.9% of all businesses in the United States are categorized as small businesses, amounting to 30.2 million small businesses. Fortunately, small businesses are less restricted to operating in their immediate area today than in the near past. Many now provide goods and services globally, meaning they need accountants with a worldwide understanding of the business and finance world, including currency exchange, supplier differences, and how to receive and process revenue.
A professional who understands global business, such as an accountant, is vital for a company's success. To further dive into the benefits of employing an accountant or CPA for your small business, read our J2T blog post, "Do I need a CPA for my small business?" on our website.
Accountants are experts in their field and stay current with ever-changing rules and principles of accounting principles. They often have a thorough understanding of accounting software such as Xero, QuickBooks, and Netsuite, which are programs that take an immense amount of time to become proficient in. Accountants automate processes in calculating expenses, making payments, and making recommendations, all while recording transactions and the financial health of a business.
Details are crucial
Accountants are detail-oriented professionals, which is essential since they calculate taxes, send payments, and hold other fiscal responsibilities.
Why do we need accounting in business?
To understand why businesses need accounting, it is helpful to understand accountants' responsibilities and action items.
- Analyze and record business transactions: Accountants are responsible for collecting invoices, bank statements, and receipts from business transactions. These are used for tax purposes and to ensure your business is adequately compensated for its service.
- Post journal entries: Accountants take documents and record them as entries for transactions accrued by the business. Journal entries are recorded under three categories: when the transaction occurred, a description of the transaction, and the associated cost. Companies use single-entry or double-entry accounting based on their needs; accountants are familiar with both forms.
- Prepare entries and adjust at the end of the period: Businesses must report and adjust balances at the end of the accounting period. This is crucial; it highlights the financial stability of a company and where the money flows. Accountants are knowledgeable on how to prepare an unadjusted trial balance and prepare financial statements (summaries of your company's financial activity) such as balance sheets, income statements, and statements of cash flows.
- Generally Accepted Accounting Principles: As mentioned above (GAAP) is a common language and list of accepted principles in the accounting field that display procedures that must be followed by all companies when preparing financial statements. In the United States, these principles are followed closely by accountants.
- Planning for growth: Accountants can help prepare a company for change as they have a thorough understanding of the financial health of a company, which executives can use to set an accurate and realistic roadmap for the future.
- Securing loans: Current financial statements demonstrate a company's position and are essential to securing a loan. 43% of small businesses alone apply for additional financing. 42% of small business owners applied for a business loan at a large bank in 2020 and 43% applied for a loan at a small bank in 2020. By having an accounting system run by a professional in the industry, putting forth increasingly intricate financial statements becomes a simplified process.
- Attracting investors: Whether or not you are currently planning to bring on investors or sell your company altogether, establishing a proper accounting system helps prepare for either of these processes. Investors and buyers will expect accounting records, vetted by a Certified Public Accountant (CPA), that show the profitability of your company and the likelihood of future growth.
- Debt management: Many companies accrue debt through loans, credit cards, or accounts payable, which occurred in excess within the past few years due to the pandemic. Balance sheets show all Owings in one place and a company's bank account balances to reference both simultaneously. Accountants prepare this financial statement and review it to share what cash the company has available to pay off debts. (For more information on how accountants benefit companies, read J2T's blog posts on how accountants save companies money, why your small business should employ a CPA, and how to stand out as an accountant.)
- Proper tax payment: If taxes are not paid in full, the IRS will fine the business at fault. If your company receives large tax refunds, it is likely the result of miscalculated quarterly estimated tax payments that the government refunds to invest in your business, not free cash from the IRS. Accountants can aid in preparing taxes to make sure the company pays the exact amount owed to avoid fines and confusion. The IRS shared four common tax errors that can be costly for small businesses:
- Underpaying estimated taxes
- Depositing employee taxes
- Filing late
- Not separating business and personal expenses
- Access to accounting/finance professionals and secure information: Accounting professionals, such as CPAs or tax advisors, provide companies with knowledge and insight inaccessible to those not in the industry. They can offer guidance on tax deductions, mitigate the repercussions of unknown tax rules, and follow best practices while working with a company.
Accounting industry growth:
Based on the above recommendations and explanations of why accountants are needed today more than ever, it is not surprising that the Bureau of Labor Statistics (BLS) predicts that by 2029, the accounting industry should see a 4% growth overall. In 2021, the industry had a compound annual growth rate (CAGR) of 5.4%, and the market is expected to reach $735.94 billion in 2025.
The median annual wage for accountants and auditors is $73,560, with the full range coming in at over $135,000 annually, showing the profitability of the field based on the pressing need for accountants.
In 2018, over 200,000 students were enrolled in undergraduate accounting programs in the United States, and the estimated revenue from accounting services in the United States reached $133.4 billion in 2021, up from $127.8 billion in 2020. There are over 1.51 million bookkeepers/accounting and auditing clerks and over 1.32 million accountants and auditors in the United States alone, further displaying the immense size of the industry.
The accounting industry is growing, and with that growth comes changes. Historically, the industry focused on manual bookkeeping and payroll; however, there is a shift toward the use of advanced technologies, which has immensely increased the productivity and optimization of accounting.
- Artificial intelligence: The onset of artificial intelligence has dramatically changed the accounting industry. Companies now use automation and artificial intelligence to perform repetitive tasks, allowing accounting personnel to focus on other activities.
- Forecasting and data analysis: Data analysis and forecasting tools utilize impressive technology that has made its way into the accounting and finance industries. Functions related to this industry have become more analytical, and through new technology, accounting departments can be more proactive and analytical in their processes. Being proficient in these areas allows accountants to improve their problem-solving skills, enhance critical thinking, and further their technical skills, which are crucial to the industry's future.
Why are accurate accounting records vital to a business?
Keeping your finger on the pulse of your business is crucial. Accountants can provide support to the following four areas that give insight as to why accounting records are essential to the financial health of a business.
- Crucial information on time: All businesses experience uncertainty, and timely access to financial information allows for quicker and more accurate decision-making. As mentioned above, many small businesses will apply for small business loans (SBA loans). To even be considered for financial assistance, companies must provide accurate information on their business's financial status upon the lender's request. This process is greatly aided when performed by an accountant and, if nothing more, provides peace of mind that your company's finances are being carefully prepared and presented.
- Accurate cash flow: Being aware of precise cash flow gives a realistic picture of a company's future sustainability and general information on the cash flowing in and out of the business.
- Provide insight on scaling a business: Whether internal or external, business growth is at the forefront of most business owners' minds. Being familiar with your company's books can provide insight on the right time to take steps toward growth, such as hiring new employees, adding unique benefits, or even when to expand into a new division. Accountants' careful preparation of a company's books helps to prepare for the future accurately.
- Show the monetary value of a company: Clean books provide an accurate depiction of your company's dollar value. Instant access to this amount can help determine a company's present value and, when combined with an accurate future growth projection, highlights the business's potential overall.
Is overhiring in the accounting department detrimental?
Over the years, companies have strived to keep overhead departments like accounting to an absolute minimum to improve the bottom line. Unfortunately, all too often, people with critical knowledge of processes and procedures unexpectedly leave, making the company scramble to find a solution. Additionally, lean teams are often forced to consistently work long hours, which results in burnout and turnover. Initially, it seems like an excessive cost to hire one or two more people onto your accounting team, but in the long run, it can save you money and help you retain top-tier talent.
Accountants and others in accounting departments are more important now than ever. With the unprecedented change that commenced due to the pandemic and new technologies on the market, adding an experienced accountant to your team will aid your company in navigating these new challenges, leading toward more outstanding achievements overall.
Written by Lauren Kemp
Lauren Kemp, Communications and Marketing Specialist at J2T, earned a Bachelor of Science in Business Management with a minor in Latin American studies and a Master of Science in Innovation and Management from Montana State University. Lauren hails from Montana and enjoys reading about the history of her home state. Her bucket-list items include touring the Biltmore Estate in Asheville, North Carolina, and taking an immersion trip to Chile to experience Latin American culture first-hand.