Accounting can be divided into three categories: financial, managerial, and tax. People typically associate accounting with tax accounting, which entails submitting tax returns to the IRS. However, since financial accounting is record keeping, you cannot perform tax accounting without first performing financial accounting. It guarantees that all the numbers on your balance sheet and profit and loss statement are where they should be. You can perform tax accounting and managerial accounting in addition to financial accounting. Financial planning and analysis (or the F,P, & A Department) is managerial accounting. This division makes decisions regarding the company’s future by analyzing the past and making projections, including whether you need more funding or employees.

Not until the financial component is done correctly can the managerial component be carried out. Since you can’t perform any of the other tasks without bookkeeping, it makes sense that it should come first. Many business owners overlook bookkeeping in the beginning, which is truly neglecting what is required for business success and the main reason why so many companies fail. There is a good reason why they do this though.  I discussed this in another post.  Your time should be primarily devoted to financial accounting. 

Although managerial accounting can be quite basic, it is going to do more to increase profits than than tax accounting in most cases. If you use a budget or dashboard and have all the necessary data, management can be completed relatively quickly. For this kind of accounting, not a lot of data is often required. You can actually judge things well with just a quick glance. For instance, it may sound quite straightforward if you need eight additional clients by the end of the month, but few individuals will benefit from that. Saying something concrete, like you must make 16 phone calls per day to new potential clients, is helpful. The goal of managerial accounting is to make things clearer and simpler. Being able to complete the straightforward task you need to complete and choosing the appropriate course of action are both important. Take this step, and everything else will line up perfectly.

Now that you have accounting data, you may decide how to optimize profit and gain by looking at it. When attempting to reduce costs, you must consider which costs can be decreased. Rent, salary, and most of the time, food, and material expenditures, are expenses that you can usually not reduce by much without paying a price elsewhere. You might also look for extra revenue sources in lieu of or in addition to cost-cutting measures. To accomplish effective CFO work requires an investment in planning and analysis. These many accounting methods are crucial for expanding your company and, ultimately, optimizing your profit.  This is why we say that bookkeeping should be an investment, not an expense.  If you only keep records but you don’t look at them, you’re missing the golden nugget.