For The Record – The Importance Of Record Keeping To Your Business
Thursday, February 25, 2010 By Mike Reddy
Behind every successful small business story there’s a lot of hard work and, yes, administrative effort. To really make your business prosper, brilliant ideas are only half the answer – you also need to ensure that your company is solid from the ground up. One way of establishing a solid business base is through good record keeping. While this may not be entrepreneurship’s most glamorous aspect, it is nonetheless a prerequisite to consistently good results.
Accurate and consistent records enable you to keep track of your company’s progress. Records show whether sales are up or down, which customers are spending and which are not, and whether any changes are needed. Without adequate documentation, making reliable business forecasts or looking back to see where you have been successful in the past is considerably more difficult.
Good records are also fundamental to the preparation of financial statements – which are necessary when dealing with banks and creditors, and also allow you to access information about your assets, liabilities and equity in your business quickly and systematically.
Small businesses receive money and property from a variety of sources on a regular basis. By using accurate records you can identify where your various receipts come from, and separate non-business receipts from taxable income.
A simple but important function of records is to act as a supplement to your memory. For example, tax-deductible expenses may occasionally slip your mind. Without an adequate record keeping system, you will not be able to claim deductible outgoings come tax time – a loss which could be particularly detrimental to your business.
Records need to reflect the income, expenditure and credits that you note on your tax return. As a general rule, these figures will be the same that you use to monitor your business during the year. Keeping good records throughout the tax year, and not just scrambling to assemble documents when your return is due, also means that you will have accurate figures available for official inspection at all times.
Choose your manner of record keeping based on the type of small business you run, and its requirements. And if you operate more than one small business, make sure that each operation’s record keeping is entirely separate.
Record keeping tips
Daily business records are probably the best type of record, since they are usually very comprehensive and allow business owners to identify outgoings and receipts with more precision than if less regular records are kept.
Supporting documents should include invoices, receipts, sales slips and paid bills. If you keep this supporting material in a systematic fashion, perhaps organised into categories, the preparation of good records will be that much easier.
Some detail is required when it comes to supporting documents. If you are a manufacturer or producer, for example, supporting material should show how much you paid for raw products.
One of the most important business aspects that good records reflect is expenditure. Emails, cash register tapes, account statements and invoices are all supporting material which allows you to keep track of outgoings.
A petty cash system is especially useful in this regard. A good petty cash structure allows you to monitor every expense that your business incurs.
Keep track of your assets. Supporting documentation should contain information such as the items’ purchase price and date, the cost of any improvements and how you use the assets in question. These details can be very useful when tax time comes around, or if you need to make an estimation of the value of your business.
Remember – record keeping may seem like an unexciting prospect, but do it properly and you will save your business a lot of time and money later on. Ask us for further advice on good record keeping.
Mike Reddy is a Chartered Accountant, business coach and advisor helping businesses in Sydney, Melbourne, Brisbane and Gold Coast to easily increase their profits and cash flow. He is currently President of the North Sydney Chamber of Commerce, a Regional Councillor for Sydney North East and a member of the Institute of Chartered Accountants Sydney leadership team. As well as advising businesses, Mike presents business development seminars and webinars and is regularly contacted by the media to comment on small business matters. You can connect with him on Facebook, Twitter and Google+.