Every company that deals with money need to deal with it properly and keep its books legitimately balanced. This can be difficult for first-time business owners - especially those who are more used to applying their own learned skills as a service or making products than they are to managing finances. That is where Accounting Compliance comes in.
Compliance with laws and regulations is not the purpose of accounting controls, but rather to help a company be the best version of itself for all stakeholders. Accounting Controls refer to the processes and procedures in place for a company to record and verify all financial transactions. This includes revenue, expenses, assets, and liabilities. Following these rules as well as external legal guidelines is Accounting Compliance.
Simple errors can lead to major conflicts, especially where taxes are concerned. This is why compliance is important - it keeps the business from getting in trouble with other parties or with itself. But this is a skill that one must learn and apply, and not everyone is good at managing their money in such a detailed manner.
Luckily, there are solutions - both as products and services. They can be Internal Controls or External Controls. Internal Controls are things like software, filing systems, or whatever processes one uses to stay compliant. External Controls are separate companies that work to handle accounting for their clients and do all the busy work for a fee.
The main method of establishing and managing Internal Controls is through software. Any business that’s making money will operate through a bank and those banks are online. Credit card transactions are locally and remotely tracked online. Software systems are downloadable onto nearly any computer, and some even fit on smartphone devices for highly mobile accounting management.
SoftLedger is an example of a cloud-based, API-driven accounting system. It exists completely online and allows users to track and manage their financial data from anywhere. Highly scalable, it allows anyone to utilize it - whether they are a small business or a much larger firm. They even integrate third-party accounting controls, being a piece of software many companies use who manage the finances of others. Since it’s cloud-based, the data can be accessed anywhere. This is ideal for businesses where every member is constantly on the move or entrepreneurs who travel for their work.
For much larger businesses or businesses with a staff that collectively has very little accounting skills, external controls may be the perfect option.
These are entire teams of CPAs, accountants, or other companies that handle accounting compliance through their own systems. The main downside to using an External Control is that they are businesses, and thus require paying. The associated cost is generally much more than it would be to hire an employee to be the company accountant. But, External Controls usually have access to more advanced methods and technology.
External Controls cover a broad range, as they include anything that could directly impact the financial compliance of your business. This includes the government who writes the compliance rules, competitors who drive you to manage your finances strictly to stay active, media exposure which can alter the state of a market and thus your access to profits or liabilities, and so on.
When debating what to focus on for the sake of accounting compliance, it’s important to note that you can never completely be without one or the other.
Internal Controls are the things you do, yourself, as a business to manage money. Whether it’s a software suite, a cloud-based solution (like SoftLedger), or it’s all hand-written and organized the way you like it. It’s the way you deal with tracking the money your business gains and loses. External Controls will always exist, and their actions will cause changes in your company whether you want them to or not.
Having strong and steady Internal Controls will help keep management high, but it requires owners to spend time away from their main line of work. And, it’s a skill some people simply don’t have. It could be cheaper, in the long run, to hire someone in and let them set up an accounting procedure for you.
This would be integrating an External Control into an Internal Control, bridging the gap. Or if a company has more to do than just tracking its money and requires active, continuous management, outsourcing the work to a CPA firm may be more profitable than hiring and training multiple in-house accountants.
There’s no ignoring every External Control out there, especially ones tied to governing bodies.
The government at every level can have a say on how you should manage your money. Breaking a law, even by accident, will incur fines that can hurt the business. It’s money lost, with no production, and not a business expenditure. Preventing fines and other fees is why Accounting Compliance is so necessary.
Integrating Accounting Compliance is easy, as software and online solutions are widely available. SoftLedger can be a great way to ease Internal Controls. It’s also competitively priced while still leaving plenty of room for the business to improve and settle into finding its own way of handling accounts. Compliance is meant to be within reach, with a little work, for every company so they can stay stable and avoid legal troubles.
Determine which approach works best for your business and what will help it stay compliant in the future. Meanwhile, why not book a demo with SoftLedger?
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