Why do I need an independent accountant for my business?

Many business owners question whether they should hire an accountant for their business. What does an accountant do for you?

Your accountant can advise you about the daily records you're required to keep for government purposes and assist you in producing meaningful financial business reports. An accountant can recommend the type of financial statement presentation that is best suited for your business.

There are three widely used financial statement presentation formats: compilation, review, and audit.


Compilation
Your accountant prepares the year-end statement based upon your records with a minimum of verification. This is the most cost-effective way to provide a financial statement presentation. These statements are normally prepared for management review and tax purposes only.


Review
Review statements involve more extensive verification of your records. Adjustments to your internal records may be necessary to fairly present your financial position. This is a more comprehensive approach, which can result in higher costs to implement. These statements can be used for management and tax purposes. They are sometimes required to obtain loans by financial institutions.


Audit
An audited statement involves in-depth procedures to satisfy your accountant as to the fairness (in all material respects) of the data presented on your financial statement. An audit is more involved and time-consuming, making it the most costly presentation. An audited statement may be required by financial institutions in order to obtain financing for your business. It can be used for management and tax purposes as well.


What other vital areas can your accountant assist you in your business? Financial reporting tools are extremely helpful in your business reporting systems. Your accountant can explain the relevance of these financial tools to your business. They are budget, projection, comparative, and cash flow forecast.


Budget
A yearly budget is the forecast of your expected financial activity for the next year. A process forces you to look to the future and determine what may happen in your business over the following year. The budget is based upon your past year's business performance and allows for unknown factors in the future. This is the optimum time for future planning. A monthly and yearly budget is used as a comparison to your actual business performance. This offers you a tangible tool to evaluate your business performance.


Projection
A projection is similar to a budget but it is ever-changing as it takes into consideration actual and estimated financial data for the balance of the year.

Comparative Statement
This is last month-to-date and year-to-date balance sheet and profit and loss reports compared to current month-to-date and year-to-date information.

Cash Flow Forecast
A cash flow forecast is obtained by projecting the timing of cash receipts and cash disbursements based upon your future business budget. This is helpful and often necessary when bank financing is required. An accountant can help ensure that the future of your business is on track.

Carl Kingston is a Certified General Accountant. Carl is a regular contributor to businessmatch-maker.com.