How well you keep financial records and other bookkeeping activities determine how well you are in control of your business and how well your business is structured. Whether you love to keep records for your business or not, and whether you have the resources to do it or not, the law requires that proper books be kept for all business activities in all countries.
The main reason why the law requires bookkeeping is to show transparency and keep the business in focus at all times. Proper bookkeeping can provide answers to the following business questions:
- What is the total worth of your business?
- What is the average profit realized from your business?
- How much do debtors owe the business as an entity?
- How much does your business owe to lenders and banks?
- How much tax should your business pay back to the government?
You need an accountant for proper bookkeeping
While it is okay to keep personal business records by yourself, it must be noted that your business cannot yet sustain itself if you cannot afford to hire a professional accountant to help with bookkeeping. An accountant is trained and capable of “establishing a record keeping system tailored to the needs and size of your particular business.”
Importance of effective record keeping practice for your business
The main reason record keeping is essential for your business is because it presents the true financial health of your business. Bankers need to see your financial books and be satisfied with it to grant you a loan; and tax collectors, potential partners and investors, as well as relatives need to know the records of your business to loan you money or be part of your business. Suppliers might also want to know your bookkeeping information before extending supplies on credit to you.
Potential investors, tax collectors, and bankers will want to understand the following record keeping information about your business:
- Financial worth of your business
- Profit and loss statements as well as revenues and expenditures
- Estimated liabilities and what the business owes creditors
- System of record keeping used and its effectiveness
- Overhead costs of running the business on daily, weekly or monthly basis
Systems of record keeping options open to small businesses
- Payroll services: This reflects salaries the business pays to employees as well as to himself.
- Cash balance: The business owner must know the amount of cash balance per week to know if business expenses and salaries as well as unanticipated expenditures can be met.
- Accounts receivable: This is the credit owed the business by creditors and customers. Knowing this will enable the entrepreneur to know when to offer credits, collect debts, and charge interests to cover for loans.
- Accounts payable: This is the opposite of accounts receivable – the amount you are owing to other individuals and businesses.
- Inventory records: A properly documented account of the business’ products, supplies, selling records, and warehouse stocks to enable the owner understand the position of things at all times.
Who should help with bookkeeping procedures?
You can keep the records by yourself if you have a very small business. You can task one of your employees for the task. You can hire an accountant to do it. You can hire an external auditing firm to help out. You can carve out a finance department to oversee this need.