Business leaders rely on the accounting function for a variety of purposes. One of these is compliance, but leaders should have much higher expectations of their accounting function.
Let’s look at how a multiskilled accounting function can provide critical support to enable the best outcomes.
Objective 1: Business Decision-making (Management Accounting)
In this case, Accountants generate financial statements (usually monthly or even weekly) for internal use. These financial statements should be customized to the needs of a business. For example, management may decide to closely track expenses, and the financial statements will reflect this.
This is known as Management Accounting (or managerial accounting) and it relies on an understanding of what management is trying to accomplish as well as their levels of financial literacy. Business needs change over time so a management accountant will be sensitive to these changes and modify their approach accordingly.
A complex business may require a highly-experienced management accountant or financial analyst who will look at business performance as well as trends in the economy to make recommendations.
Objective 2: Reporting to Outsiders (Financial Accounting)
Most businesses are responsible to people outside the company, such as investors, lenders, government agencies, potential acquirers, auditors, etc. These people (or entities) often keep track of the business’s financial health and profitability by viewing periodic financial statements.
This is known as Financial Accounting and it requires an understanding of the goals of the people who will view these financial statements.
Objective 3: Tax Minimisation (Tax Accounting)
A business should adhere to tax laws and pay its fair share… but no more than that.
Tax Accounting ensures that taxes paid don’t exceed the amount required by law. A tax accountant will have a thorough understanding of tax laws as well as practical steps a business can take to achieve a more advantageous tax position.
Objective 4: Increasing Profits (Cost Accounting)
Most business leaders want to increase profit. One way to do this is to analyze the costs associated with producing a product or service, leading to better decisions on pricing, investment, and inventory management.
This is known as Cost Accounting and can result in increased margins for a business. Cost Accountants provide forecasts (or simulations) to managers who decide which course is best for the business. They also explain the risks associated with each option.
Objective 5: Managing Cash (Credit Accounting)
Cash flow is critical in any business. Cash flow management requires a good understanding of the debts and liabilities of a business so that cash is used in the most efficient way. For example, negotiating different payment terms can free up cash for some other productive purpose.
This is known as Credit Accounting and requires a good handle on business cash flow. Sometimes a Credit Accountant will ‘negotiate’ with management to ‘encourage’ different spending patterns… even when the proposed approach is unpopular.
These are just some of the activities of a multi-skilled accounting function.
A business may also require access to ‘specialist’ accountants such as Auditors, Forensic Accountants, Investment Accountants, Project Accountants, and Financial Advisors – to name a few.
Make sure you are getting the full range of benefits a strong, multiskilled accounting function can offer.
If you have any questions, please feel free to contact our office.