The Importance of Bookkeeping
It is surprising that some people run their business without keeping proper accounting records of their transactions. Why on earth would a businessman operate its business off record? Some who claim to have a record for their business activities only have their bank statements to show for it. Bank statements can never be a replacement for accounting records. It is just one of the sources of information for the preparation of the accounts. While your bank statement will only show you the balance you have in your bank account at a point in time, it will not show you how much you have in hand, the amount you are owing your suppliers, the amount your debtors owe, the bills that are due for payments, neither would you be able to ascertain whether you are making profit or loss.
The importance of keeping accounting records cannot be over-emphasized. Whether you are just a start up or a growing business, you need to know the financial position of your business at any given point. As a start up company, it is always easier to set up your accounting system at the initial stage before everything is muddled up. Those people who accumulate transactions before realizing the needs to have proper accounting records do not only get things complicated, they pay more at the end of the day when compared with what they would have paid initially because it takes an experienced accountant to prepare accounts from incomplete records. Record keeping is a vital part of your business and you need to recognize that as early as possible. The same way you see sales as vital to the survival of your business, so also is the record keeping. What is the link you may ask? From where I started in the early paragraph, you can see some benefits, which are hidden in record keeping. As you will agree with me that it is not enough for a company to make sales, it should be able to turn its sales into profits. If a company is trading and making losses consecutively, it is just a matter of time that the whole business will fold up. How can a business ascertain whether it is making profit or not if there is no records to substantiate this? How can the growth of business be reliably measured without records?
The mistake some so-called entrepreneurs are making is that they see few bucks they will spend on maintaining proper accounting records as a waste of money. They see it as avoidable costs, which they can easily do away with, but in the real sense, they cannot avoid the costs perpetually. Some recognize this early while some do not. The truth of the matter is that the benefits out-weigh the costs. It is possible you have not yet seen any need to keep good records of your business transactions; I will enumerate few here.
You will know the financial position of your business at a given time. Financial position is not limited to your cash and bank balances. You will be able to know at a glance your financial commitments. This includes payments due to suppliers and other expenses such as utility bills that need to be settled. You will equally know how much your customers are owing you. Most especially, if you use accounting package, you can easily generate different reports on your customers such as top customers, the aging of the receivables, and the over-due debts.
You can measure the performance of the company. The primary objective of a business is to make profits. When your account record is intact and up to date, you can easily ascertain whether you are making profit or not. You can also determine the customer or a product that is not profitable. This will help you focus more on the profitable ones.
Growth rate of the business can be measured. Data will be available to compare the performance of the past years. The growth trend of the business can be predicted based on the past performances. Some products are seasonal in nature. With the information of the growth trend at your fingertips, you can plan successfully for the low sales and peak periods.
Access to finance
Ability to provide financial statements of your company increases your chance of getting finance to grow your business. It is part of the requirements you must meet if you want to access credit facility from a bank. Also, before any investor can have confidence in your business, he will like to see your company’s past performances.
Determination of tax liability
Payment of taxes is your responsibility to the governments. Tax payable is computed based on profits your company makes having adjusted for some allowable and disallowable expenses. The actual amount payable can only be ascertained when there are records about the financial operations of the business. When this is not in place, assessment of tax payable is based on ‘best of judgement’, which is just an estimated figure of tax payable. In most cases, any company that is assessed based on ‘best of judgement’ usually pays much more than it would have paid if only the tax had been calculated based on the actual performance of the company.
In conclusion, keeping good records of transactions about your business helps in planning, evaluation and decision-making.
OTN Consulting is a firm of chartered accountants pioneering bookkeeping and accounting outsourcing in Nigeria. We help our clients succeed by providing expert, timely and dependable accounting services and financial insight. Outsourcing your accounting needs to our firm allows you to achieve cost savings through reduced need for internal bookkeeping staff, helps you make informed business decisions and gives you time to focus on your core business.
Contact us for more information: