Africa-Press – Eswatini. Whether you are running a formal or informal business, and whether the business is small, growing, or expanding, keeping financial records has no substitute.
While this might be tedious for many small business owners, record-keeping remains an important aspect of business management. For a small business, it does not require a qualified accountant to keep financial records.
It starts with keeping every single receipt or invoice for all expenses and income. Sorting and filing these documents will help you record the transaction.
Without complicated accounting software, a simple exercise book can serve the same purpose.
Technology can save your day, as there are many simple accounting and bookkeeping programmes on smartphones.
Many small business owners fail to keep financial records for one reason or two. One of them is simply ignorance.
Some deliberately don’t track their income expenses to avoid accountability. In so doing, they run their businesses blindly.
Without keeping financial records, you never know whether your business is making a profit or a loss.
You may think that you are making a profit just because you sell your products at a higher margin, but that is not enough.
There are some operating costs that you may not easily take into account without looking into financial records.
It is a requirement
Keeping financial records is required for determining how much tax the business should pay. Not only that, but other stakeholders also need to make decisions about your business. When looking for funding from financiers, they need to know how your business is currently performing.
Some types of businesses require affiliation and accreditation, and financial statements are part of the requirements.
To prepare financial statements that reflect the true financial position of the business, proper record-keeping is required. Shareholders need financial statements to see how their money is performing.
If you are the only shareholder, you also need the financial records to measure your growth, both as the company and as the owner. Make sure that your financial records are accurate and reliable to report the financial performance of the business.
Preparation of financial statements
Financial statements are very important for every formal business. Informal business owners may also need financial statements when making decisions to transform their businesses. Financial statements tell a story about business performance in numbers.
Financial records provide the basis for drawing three main types of financial statements. The income statement, also known as the statement of profit and loss, shows how the business performed in its trading activities for a given financial period.
From the income statement, you can see whether the business made a profit or a loss. The second one is the balance sheet, also known as the statement of financial positions. This reflects the assets, liabilities, and equity of the business at a given date.
These figures include how much assets you have acquired, how much your customers owe you, how much you owe your creditors and financial service providers, and how much equity you have. Without keeping financial records, you cannot prepare financial statements.
It helps make informed decisions.
Running a business involves making decisions, setting new goals, and making plans. This is impossible without taking into account past financial events.
To do so, bookkeeping plays a crucial role. By analysing your financial records, you can make decisions on how to improve, grow, and transform your business, which includes increasing sales, reducing certain expenses, determining how much more capital is needed, and how much your customers owe you and how much you owe.
Crucial decisions may also include closing down the business, selling it, downsizing, opening a new branch, changing locations, increasing or reducing the number of employees, and conducting salary reviews. In short, keeping financial records and preparing financial statements will help you analyse the performance of your business and decide what needs to be done. You may Measure your growth
Keeping proper financial records will help you determine how your money is performing in your business. Not only that, you also need to determine if your business is worth all the hassle. Running a business is an investment, so you need to see how your money grows. By keeping records, you monitor your profits, assets, and equity.
Making a profit alone is not enough. The
E10 000 you started with five years ago should have made significant growth.
You deserve a financial reward for working so hard every day.
You need some financial reward to motivate you to continue running your business and to improve your welfare and lifestyle. With financial records, you can decide how much you need to reward yourself for your labour and investment.
You might be working for nothing or drawing too much, leaving the business financially dry. There are many other uses of financial records and statements. Knowing where your money goes and how much comes back can give you the emotional strength to continue running the business or help you stop stressing about a dead horse.
Sadly, many small business owners who don’t keep records are always crying foul because they don’t have an idea of what their business is doing.
Running a business can be very stressful, and if it is making a loss, close it and consider looking for employment or starting something completely different. To reach this decision, financial records play a key role.
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