Tag Archives: cost accountants

Financial and Managerial Accounting Are Not One and the Same

As a business owner, you’re constantly jugging a host of decisions. Is it time to move your business to a new location? Do you need to expand your staff? Is it time to increase your advertising budget? Is it time to add a new product or service to your business’ offerings? These are not easy decisions. Fortunately, business owners can rely on financial and managerial accounting to help make them.

These two accounting methods are quite different. When you hire an accountant to perform managerial accounting tasks, that accountant will report directly to you and the other managers in your business. The goal here, is for accountants to study your business’ financial health and prepare a report that summarizes the findings in language that is easy to understand. You can then study this report to help decide if moving to a new location will boost your company’s bottom line or place undue financial stress on it.

Financial accounting is a different entity, but one that is just as important. This time, you’ll hire a certified public accountant to again study your business’ finances. This time, though, the accountant will make sure that you are correctly filing your taxes, are properly balancing your books and have a cash-flow projection that is accurate and realistic.

In short, managerial accounting helps you make the big decisions for your business. Financial accounting helps you make sure that your small business is operating in a fiscally sound way on a day-to-day basis.

The difference may sound minor, but it’s actually not. Financial and managerial accountants have vastly different jobs to perform. The end result of their reports, too, is extremely different.

If you’re debating whether it’s time to expand your business, you might consider hiring an accountant to perform some managerial accounting for you. If you’re just hoping that your books are balanced and that your expenses are totaled correctly, you’ll be fine hiring an accountant to concentrate on financial accounting instead.

James enjoys helping new accountants make decisions about their careers. He believes that managerial accounting provides accountants with a rewarding career where they get to use some of the skills that not ordinarily associated with accountants. Management accountants get to offer consulting advice and be involved in the strategic decisions of a company.

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Net Asset Value Or Business Value-Not The Same Thing

Accountants always seem to get lost in the valuation of a business. Whilst this is understandable, it can create problems when a business is sold. Even the Discounted Cash Flow method of valueing a business can be misplaced.

Net asset value is simply the assets, minus liabilities of a business. Businesses are sometimes sold using this value, Whilst few and far between, it does happen. Net asset value is more applicable for tax purposes, but is never a fair indicator of the intrinsic value of a business, albeit an important component.

Some businesses are worth much more than their assets on their books. Take a small fashion designing business for instance. The assets in the business, might be less than $10 000.00, but the value of its owner cannot be quantified in monetary terms.

The discounted cash flow method of business valuations is a more realistic method of calculating the value of a business. Formulas used in this method however, still overlooks the essential components such a skills and talents. Some accounting policies are in place to measure intellectual capital, but remains vague in its application. Copy right and patent laws cover intellectual property, but it still remains difficult to quantify in monetary terms what an individual is worth to a business.

In accounting an employee salary is recorded as a cost, and not an asset. So the loss in income due to a loss of human capital is never measured, only noted. Are employees, costs or assets or liabilities(many are liabilities)? For the most part employees add value to a business.

Does the location or appearance of a business add value? Of course it does. Being located close to banks, corners and parks makes a big difference. A neat tidy appearance of an office also attracts customers. A receptionist with a friendly smile will keep your clients coming.

These aspects should make a big difference when it comes to establishing a true value of a business. Costs have absolutely nothing to do with TRUE value.



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Sean Goss