How would you know whether you are winning or losing?
Similarly, if you are running a business and you are not keeping a proper record of your business transactions, what would be the point of running the business? How would you know if you are making a profit or making a loss? How would you know if you are spending too much? How would you know if you are charging the right price for your goods or services?
It is therefore imperative that you keep accurate records for your business. This cannot be overemphasized as it is vital to the survival and success of the business.
Benefits of Maintaining Proper Records
Keeping accurate records is important in determining the profitability of a business. By keeping proper records, the profit or loss made by the business can be easily calculated.
Secondly, in order to maintain adequate control over the business and to optimize profits, it is important to maintain proper financial records. The records will help to ascertain whether revenues and expenses are handled correctly and whether the resources of the business are being managed efficiently. This is vital if the business is to be successful because only if the resources of the business are managed efficiently will profits be optimized.
If you are operating a small business, you may need to apply for a loan, to purchase stock, expand your business or to purchase a delivery vehicle, for example. In order for the lending institution to consider your application, you will be required to supply financial information to help the bank determine if you will be able to re-pay the loan. Having proper records significantly increases your chances of securing the loan and thereby enabling you to increase your sales. If you do not have the proper records, the bank may refuse your loan causing you to lose sales because you are unable to re-stock, or to carry out needed expansion to increase sales.
Another reason to keep good records is that it helps you determine if you are pricing your product or service accurately. To do this you must have an accurate record of all costs that go into providing the good or service. If you do not have proper records, you may forget some of the expenditure you incurred and as a result you may sell your product or service for less than what it cost you. This will lead to your business making losses.
As a small business you are required to pay certain taxes including, unincorporated business tax, value added tax and turnover tax. When preparing your tax filings it is essential that you have good business records. Poor records can result in missed tax deductions, for example for VAT Input tax and therefore result in you paying higher taxes than you should have paid. Proper records is especially important, if you pay a tax preparer to do your filings because it would take less time and effort on the preparer’s part and therefore should cost less.
When you have proper records and you also have them filed properly, you save yourself a lot of time and money. You are most valuable when you are working on profitable activities such as getting a sale or delivering a service. If you have to spend countless hours looking for information or trying to reconstruct records, you are wasting resources that could have been saved had the records been properly kept.
Financial record keeping might seem like a chore, but for a comparably small amount of time invested, you can reap significant benefits for your business. Well organized records are at the heart of every well-managed small business.
Your long term financial success depends, in part, on making the effort to organize and maintain your records so that you are able to have access to the information you need, when you need it.
Whatever the nature of your business, remember, good record keeping is vital for its survival and success.
This article was submitted by Mr Donald Thompson of the St Kitts-Nevis-Anguilla National Bank as part of the activities commemorating Financial Information Month, October 2012, celebrated under the theme: Challenge Yourself. Innovate-Compete-Succeed.