There are immense benefits in maintaining good record keeping of your business. Keeping financial records is always a difficult task for small business owners. Most likely, you’d rather spend your time selling your product or service than spending time to keep your accounting records. However, if you are going to run a successful business, accurate and timely financial information is a must. Here are some of the benefits of a good financial recordkeeping system that you will enjoy:
- Monitoring the success or failure of your business. It’s hard to know how your business is doing without a clear financial picture. Am I making money? Are sales increasing? Are expenditures increasing faster than sales? Which expenses are too high based on my level of sales? Do some expenditures appear to be “out of control?”
- Providing the information you need to make decisions. Evaluating the financial consequences should be a part of every business decision you make. Without accurate records and financial information, it may be hard for you to know the financial impact of a given course of action. Will it pay to hire another salesperson? How much will another production employee cost? Is this particular product line profitable? Do I need to buy or lease and equipment? What is making your revenue to increase or decrease from previous month? What overheads is taking the larger percentage of your gross profit?
- Obtaining bank financing. A banker will usually want to see audited financial statement: a statement of financial position, income statement, and cash flow statement for the most current and prior years, as well as your projected statements showing the impact of the requested loan. A banker may even want to see some of your bookkeeping procedures and documents to verify whether you run your business in a sound, professional manner.
- Obtaining other sources of capital. If your business has reached the point where you need to take in a partner, any prospective partner will want to become intimately familiar with your financial picture. If you need capital and are thinking of taking in an outside investor, you will need to produce a lot of financial information. Even your suppliers and other creditors may ask to see certain financial records, with objective to ascertain your financial credibility. Such information may be produced by your auditor, but it is based on your day-to-day record-keeping.
- Budgeting. All businesses should use a budget for planning purposes. A budget will help keep your business on track by forecasting your cash needs and helping you control expenditures. In addition, if you are seeking bank financing or other sources of capital, a banker or prospective investor will probably want to see your budget as evidence that your business is well planned and stable. You must have solid financial information to prepare a meaningful budget.
- Preparing your income tax return. Whether your business is a sole proprietorship (whether enterprise or ventures), partnership, or limited liability company, you must file an income tax return and pay income taxes. With good records, preparing an accurate tax return will be easier and you’re more likely to be able to do it on time. Poor records may result in your underpaying or overpaying your taxes and/or filing late (and paying penalties). If your tax accountant prepares your income tax return, poor records will almost certainly result in your paying higher accounting fees. If your business is a partnership, not only will you have to prepare a partnership tax return, but partnership return amounts will pass directly to the tax return of each partner. So your record-keeping will directly affect the tax return of each partner. Your poor records can also result in you paying unnecessary penalties and interest based on best of judgement assessment by the tax authorities
All the above benefits allow you to be on top of your business in terms of control and also allow you to be on the side of the law. If you are missing out of any of these benefits, we can be of help to your business, CLICK HERE.