Blog - Wave Accounting - Free Small Business Accounting Software

This post by guest blogger?Joshua Azran?appears as part of our series Small Business 500.?

Accounting systems are not simply meant for after-the-fact reporting to prepare the year-end Federal and State tax returns. Rather, an accounting system should proactively be used as a tool to manage the business. ?Failing to plan is planning to fail?. Though one may achieve business success without adequate planning, to maximize opportunities and minimize risk, ongoing budgeting, planning, and analysis using an accounting system is a necessity for any business. The following are five ways that accounting helps your small business generate profit:

1. Apply Pareto Analysis, or the 80/20 rule

The Pareto Analysis provides that 80 percent of outcomes can be linked to 20 percent of causes. This means that 80 percent of your revenues may often be generated by 20 percent of your products or services, and that 20 percent of your customer base may command 80 percent of your business resources. The question is: Are these the same products and/or services, and/or customers? To know which is which, who is who, and what this all means for your business, you will first need an accounting system. In this example, with clear information you can focus your time and your resources to achieve the best product mix while most effectively deploying your staff.

2. Take advantage of trend analysis

Numerous macro or micro-economic factors affect businesses, such as a change in the price of raw materials or a shift in buying habits. Whatever your business may be, trends need to be analyzed in order to make the necessary adjustments to either minimize a potentially negative impact, or take advantage of a potential gain. For example, in a seasonal business, perhaps it makes sense to accumulate inventory when prices are low during the off-season to serve your clients during the busy season. Accounting allows your small business to find profitable trends and capitalize on them.

Source: http://www.waveaccounting.com/blog/

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