on August 4 | in BUSINESSWISE, MONEYWISE | by admin | with No Comments

Before we answer this question, let us draw a distinction between monthly accounting and financial accounting, writes Dereck Roos, CEO of South African business services provider BizShift.

Monthly accounting involves bookkeeping, payroll, and tax. Your month-end accounts are important to be able to calculate your tax correctly, know that your business is on the right track, and to allow you to look at certain ratios that guide your management decisions.

Financial accounting includes the calculations that allow you to price your products and services. This is important, because it enables you to make sure you are selling and buying at the right price. For example, you should have a good understanding of profit margins, because small changes in margins can have a large impact on profit.

Many small business owners who produce accurate monthly accounts do not know how to use those numbers the monthly accounts have produced to carry out financial accounting. On the other hand, many entrepreneurs who feel confident about their accounting knowledge take it upon themselves to do their own monthly accounting. The thinking behind this is sound: “keep your fingertips on the numbers the business is producing”.

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