SMEs: What Essential Business Records Do You Keep?
If you have established or are about to launch your business, congratulations! It takes unwavering passion and perseverance to get by with that all-important decision. Starting a business or running it effectively can be an overwhelming process in this environment. You will agree with me that small business operation is difficult without proper records and documentation of all business transactions. In Nigerian, especially Lagos State which is the commercial nerve centre of the country, millions of micro and small business owners are struggling with basic bookkeeping and having structured financial statements despite having a good business case with great products and services.
Consequently, it is important to state that business records are significant to the sustainability of any enterprise. The simplest of the records are Book Keeping and Accounting which are two aspects of the Accounting process. Bookkeeping is the day-to-day process of recording business activities, summarising, categorising financial transactions, and reconciling bank statements.
Accounting assumes more advanced responsibilities of analysing and interpreting outputs of bookkeeping. Bookkeeping is so essential from the first day of your business to the time of the business owner’s retirement. Book keeping and accounting tell the actual state of the business.
Therefore, for an entrepreneur, it is advisable to monitor the progress of your business by paying attention to every minute detail of Book Keeping and Accounts. Consequently, to achieve this, one must be aware of the accounting basics and keeping the right records. As a business owner or entrepreneur, if you do not understand the different types of “accounts” required to organise your finances, measuring the success (or failure) of your efforts will be fruitless. Particularly doing it right, prepares you for government audits, helps prevent fraud, and also help in recognising the business status.
Categorically, basic accounting practices are the primary tasks in every business entity, regardless of its size and number of employees. Many small business entrepreneurs in Nigeria forget that the token of being a successful entrepreneur is understanding the basic terms of bookkeeping and accounting.
No doubt, small and micro business owners forget that for business to be adequately successful everything about the business finances needs to be captured, not just the business bank account balance. Do you know according to Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) the Government agency stimulating, monitoring and coordinating the development of the MSMEs in Nigeria and intermediating between MSMEs and Government reported that over 50 percent of small businesses fail in their first year and 95 percent fail within the first five years of the business?. And the most common reason is a lack of bookkeeping knowledge among the owners.
Without proper accounting system and bookkeeping, it will be difficult to survive with the harsh environment in Nigeria. Because a good financial record and bookkeeping is the road map that shows us exactly how the business choices affect the profitability of the company. The starting point is to have legal registration of your business, set up a business bank account with a commercial bank. Develop a bookkeeping system that is the foundation of solid business record keeping, learning to track your business income and expenses effectively. Recall quality accounting practices can assist you to make timely payment or early payment, which is a good sign of business success.
So, learning the way to create and read balance sheets, cash flow charts, and other financial records has become imperative for small businesses to survive in the competitive market. However, if this proves difficult it can be outsourced. Here are some of the accounting and bookkeeping basics that you need to understand: Cash Account is important, remember cash is the blood of any business and every business transaction passes through the cash account; this ledger shows how much cash a company holds.
No doubt, small and micro business owners forget that for business to be adequately successful everything about the business finances needs to be captured, not just the business bank account balance
Further to this is Accounts Payable which is concise bookkeeping to help assure accurate payments and avoid paying a vendor/contractor twice. More so it helps in managing working capital and also improves business reputation. It’s necessary to track the pending bills and have a clear idea of the payments that need to be done. Accounts Receivable is next, this simply means the amount owed you. Every business should keep a record of its debts and try to recover the amount as soon as possible to keep the business liquid. Another very important accounting activity to prepare is Bank Reconciliation which in accounting means verifying, so this is the verification of the statements/records that you have maintained and the bank statements. This helps you to avoid any kind of fraudulent transaction and gives you the right picture of your income and expenses.
It is said that Loans Payable should be monitored in business because if you have borrowed money to buy equipment, vehicles, furniture, or other items for your business operations, the Loans Payable account tracks payments and due dates. Some of the other records to keep are Inventory Account, Payroll Expenses, Equity Shares of the owner, Sales Account, Retained Earnings.
In conclusion, if you are you having problems managing the records, bookkeeping or accounting process of your business or your business process require a review due to some challenges or current realities, you might need to reach out to get smart, professional, and effective advice to help rectify any business related issues. Good Luck!