Comparing Accounting For Small Business vs. Big Business

04 Jan Comparing Accounting For Small Business vs. Big Business

Posted at 11:00h in

Bookkeeping & Accounting

by Becky Brown  •  0 Comments

accounting-small-business-vs-big-businessNot all businesses are created equal. To be more specific, a small business is not just a smaller version of a big business. On one level, this seems obvious. There is a vast difference between a mom and pop shop or a local restaurant and a huge multinational corporation. Unfortunately, though, this is not always understood, and all too often, small business owners see their operation as being the same as a much bigger businesses, except on a smaller scale. But there are much greater differences than simply having less employees, less sales and so on, and those differences need to be taken into account in approaches to management. When you’re setting up accounting systems for your business, those differences need to be considered as well.

For starters, what actually determines whether a business is considered “small” or “big”? You can measure the size of a business by the number of employees, or by the volume of business. Generally speaking, if your company has more than 500 employees, or revenue greater than $7 million annually, it’s not considered a small business. If you want to get technical about it, the U.S. Small Business Administration (SBA) has specific standards for what constitutes a small business depending on what field you’re in. 

When we talk about financial matters, perhaps the biggest difference between small and big businesses is the clout that comes with having a large amount of market share and doing a high volume of business. Small companies often find that it’s more difficult to obtain financing, be it from lenders or investors, than much larger companies. Big business can typically get loans or credit lines with much more favorable terms. They can also generally purchase materials and supplies at discounted prices due to the high volume they’re buying.

For a small business, accuracy and precision are of the utmost importance. It’s not that big businesses don’t need to be accurate. But for a large corporation, an error even in the millions of dollars is in many cases something that they can recover from relatively quickly. For a small business, on the other hand, even a small mistake in accounting can have catastrophic effects.

Another major difference is that a big business will likely be able to keep a full in-house staff to handle professional services like accounting and legal matters, whereas this isn’t always the most sensible approach for a small business. In most cases, it’s more efficient and practical for a small business to outsource functions that are not a part of their core competencies. Virtual accounting has become an increasingly utilized solution for small businesses, who can’t afford to maintain a fully staffed accounting department.

Virtual accounting offers a number of advantages for small and growing young businesses. It’s almost always more cost-efficient than hiring someone as an employee or having an accountant or bookkeeper come in to do your books. And you get access to a team of experts, as well as cutting-edge technology which will put you on par with what’s available to big businesses. Perhaps most importantly, you don’t need to spend valuable time and resources which you can put to much better and more productive uses.

 

Topics: Bookkeeping & Accounting