Starting a business or becoming an entrepreneur is something that everyone aspires to do one day but the road to entrepreneurship is never easy. As a business owner, you would need to unlearn many things and charter unknown territories to make your business work. You might be good at executing your idea but there are a lot of other aspects of the business that can make your life difficult. One such thing is business compliance, inventory management, payroll management, etc.
A business is identified by the charisma of the founder and its financial viability & performance. This is where financial accounting comes into the picture since it is a true reflection of the financial performance of a company. For aspiring entrepreneurs who have the question ‘What is Financial Accounting’, we explain in very simple words.
Financial Accounting is the process of preparing the financial statements of a company. It is the way to show the position of the company to important stakeholders of the company e.g. suppliers, vendors, customers, etc. If a company is a publicly listed company, the financial performance is also available to the stakeholders of the company i.e. the people who own shares of the organization.
Important components of Financial Statements
• P&L (Profit & Loss) statement
• Cash flow statements (CFS)
• Balance Sheets
• Statement of retained earnings
Business owners take painstaking effort to make sure that their business is cash-flow positive and the burn-rate is kept to the minimum. Positive earnings means the financial health of the company is good. Any enterprise/organization has to follow the required legal & compliance norms required for running a business. Financial Statements are one way in informing the key stakeholders that the organization is adhering to the necessary norms.
Key purposes of Financial Accounting
• Exhibit the financial performance to the key stakeholders of the organization
• Ascertain operating results of the business
• Exhibit that the organization is following the necessary compliance laws required for running a business
These things are very complicated and using good ERP (Enterprise Resource Planning) software can help in Financial Accounting. The software is also called an Accounting Software since it is used by professional accountants and experts in the financial accounting field. Accounting Software is primarily used to keep records of the financial activity of the company, measure financial performance, and take vital actions based on the data.
Depending on the type & scale of the business, the requirement for Accounting Software may vary. Some business owners would need the software for payroll management, others for inventory management while many might require all the features for running their business. There are different types of Accounting Software, some of them are mentioned below:
• Billing Software: It is primarily used for billing/invoicing related activities. Rather than keeping a track of delayed payments, payments from vendors, payments to suppliers, etc., this software can be used to keep automatic tracking of everything related to payments.
• Payroll Management: It is used for keeping track of your employee’s salaries, manage deductions from their salaries, producing tax statements, generating payslips, and depositing salaries directly in the employee’s bank accounts. A large and distributed organization will require a scalable payroll management system so that it eases the life of the accounts team.
• Enterprise Resource Planning (ERP) Systems: This category of accounting software integrates all functions of business in a single system. In simple words, you can manage accounting, inventory management, billing, product planning, etc. using a single software. Good ERP software is the one that requires a flat learning curve and that scales with the scale of the company i.e. it can be used by all types of companies/organizations, irrespective of the scale/size and allows you to add features/functions as you grow.
Whether your company is a startup or a business conglomerate, choosing the right financial accounting software can do wonders to the organization as it improves productivity, saves costs, and helps in maintaining customer relationships.
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