The perception may be large businesses with complex operations are the only ones that need accountants, but we’re here to tell you even the smallest small business, with one owner and no employees, can benefit and should be working with a Certified Public Accountant.
Accounting requirements for large businesses vs. small businesses
Requirements vary, but in general, business accounting requirements are complex at all levels and report information similarly.
The United States designed Generally Accepted Accounting Principles (GAAP) to ensure consistent and accurate accounting across the country. GAAP is controlled by the Financial Accounting Standards Board (FASB). However, only regulated and publicly traded companies have to follow GAAP.
For small businesses that are not publicly traded, a simpler method of accounting known as income tax basis exists. The income tax basis of accounting still ensures consistent and accurate accounting across the country. Under the income tax basis, revenue and expenses are accounted for using the same method as the tax return. For example, a small business filing their tax return using the cash basis would present financials statements using the cash basis, reporting revenue for cash received and expenses and cash spent.
You may be surprised to realize large businesses file similar reports as your small business, and thus require similar accounting to get the information into these forms.
Quarterly payroll tax returns are filed on form 941, while employee wages and benefits are reported on form W-2 and W-3. The same income statement, balance sheet, and cash flow statement that help you run your business are the three major financial statements under GAAP as well. And of course corporate and personal income tax returns are filed with the IRS. Large businesses have accounting and tax professionals to help prepare all of this; do you?
Accounting benefits for large businesses vs. small businesses
Accounting is more than a requirement. It is a beneficial process that provides value to companies large and small.
Telling the story
Accounting tells the financial story of a company, and this story is what you tell to prospective employees, potential partners, and third parties that need to know. If you want a loan from the bank, they’re going to want to hear your story, and then review the story your financial statements tell. And if you’re audited, you’re going to be happy you have an accurate financial story to explain everything the auditors ask.
You often need to know where you’ve come from to determine where you’re going, and accounting is the key. Whether you’re a large company considering doing business in a new country, or a small business considering a new county, many of the same processes will occur. You will review if your company is in a position to make a big change, what type of business has succeeded in the past for you, and whether you stand to make a profit doing business in this new place. All of that information can be found in your accounting records and help you make an informed decision, rather than guessing or just going with your gut.
Accounting impact for large businesses vs. small businesses
Accounting may actually be more impactful for small businesses than large businesses. With more at stake and the ability to move quickly, small businesses that prioritize accounting get more bang for their buck.
Small business owners take on a tremendous amount of risk, and they’re brave for doing so. Large businesses have their own risks, but in general they have more cushion than small businesses. In fact, the de minimis amount (the threshold at which everything less than that amount is not worth the time to look into) at some large companies is greater than the annual gross income of some small companies. Large companies can make mistakes and absorb the losses. Small business owners often can’t, which is why an increased attention to accounting procedures and details has a larger impact on small businesses.
Agility in business means the ability to make changes quickly. Large businesses can’t move quickly, but small businesses can. Small business owners can change their minds, change procedures, or try something new whenever they want. Accounting is the tool that helps them notice the problems, make changes, and track the impact. A change could be large, such as removing a failing product line, or small, such as changing a vendor that has become too expensive as a percentage of sales, but all of this knowledge comes from the accounting records.
Working with Haworth & Company, Ltd.
Haworth & Company has been working with small business owners for over 30 years in the Twin Cities and Rochester, MN. If your small business needs better bookkeeping, tax planning and preparation, payroll, or consulting, please contact us today. Large businesses get most of the attention, but small businesses are the backbone of our country, and our purpose is to help them succeed.