EVERY business, no matter how small, desires to succeed in its endeavours. However, in order to be a success in the business world, business owners need to develop the discipline of keeping track of all the sales, cash proceeds, and overall turnover of their business.
By Clive Mphambela
One of the many reasons why most small businesses sometimes collapse is because the owners fail to keep basic business records. Business records help the owner in assessing the health of the business, especially whether the business is making a profit or not. The most common reason why small businesses do not keep records is usually the belief that it is expensive or very complicated to do so. Maybe but , but this may not be so actually!!
Indeed, basic recordkeeping may require additional diligence and effort by the proprietor or manager of a business, but certainly will not cost a lot of money. Neither does basic recordkeeping require specialised accounting skills. Oftentimes, it requires just business common sense and the basic ability to read and write and commitment of the business owner. We discuss today some of the basics, that every small business owner must know about recordkeeping for small businesses: the methods, indicators and measures as well as some of the benefits of basic record keeping.
Advantages of recordkeeping
There are numerous advantages to keeping proper records of transactions for your small business and here are some of them.
Basic financial records will help you prepare financial statements that will become invaluable when you want to approach potential financiers or funders for the growth of your business. Financial records are needed when one approaches a bank to apply for a loan for example.
Ongoing business analysis
Assessing the health of your business is near impossible without records. Keeping basic records will assist the business owner gain greater control of the financial aspects of the business. It becomes easy for example to determine which activities are costing the business in terms of losses and which areas are profibale and require more effort and investment. You can see which sectors are bringing in more profits and where your business is suffering losses.
Understanding your business cashflows, income and balance sheet
Basic records will help you to keep track of the cash flows of your small business. Cash is king and understanding which activities are generating cash within your business is key for the business owner, who can then adjust his efforts towards the cash positive activities. This information is extremely important to your bankers and other providers of finance as they are also keenly looking at understanding your business cashflows so that they can determine the nature and of the sources of funds for repayment of any loans they may consider granting to your business.
Enabling good citizenry
Most small businesses avoid keeping records as a possible way of avoiding tax obligations. However, most small businesses end up losing to opportunity to benefits from tax rebates offered by the proper registration of your business for tax purposes.
This also robs many of our small businesses the ability to be recognised as responsible citizens who contribute to the fiscus, to national Gross Domestic product (GDP) and employment in the country.
Establishing a sound financial track record
Your basic business records together with your bank statement tell your business story. From the day you started operations in earnest to today.
Religiously operate a business bank account and where possible, bank all receipts and record all payments against your bank account. Your bank statements will provide potential lenders, (including your bank) a useful record of how your business has been running and will prove crucial in providing an insight into how it will run in future. Because recordkeeping is crucial to almost all aspects of your small business, what is the optimal way of keeping records? The following section discusses some tips for effective record keeping.
Update records daily
Daily updates keep the business owner from being swamped under a mountain of paperwork at the end of the month or at the end of the financial year. It also avoids issues being buried and forgotten and the business owner having to rely entirely on memory to reconstruct events.
File receipts and invoices
Keep copies of all receipts and invoices issued by your business. This helps you to keep track of who gave you which payment, how much it was and why and when. This also helps keep track of your businesses sales and creates a basic trail. Make it a habit to ask for a receipt whenever you spend money on behalf of the business.
Keep all payment documents in a well annotated or labelled file preferably in date order. If you own more than one small business, keep separate records for each.
You need to file certain documents in the proper places if you wish to maintain a proper record of your finances. Purchases, sales, payrolls, and receipts must be preserved safely in a filing system. Keep a separate file or folder for these documents.
Suppliers’ receipts document your buying and selling transactions. These receipts should also be filed separately. Keep documents related to business expenses. Even small cash payments should be recorded.
Ultimately talk to your banker!!
Recordkeeping is crucial if you want to have a clear idea of your financial transactions. If you need help with recordkeeping, you should talk to your banker. Your bank should not be just a place where you deposit your money and get a loan in need.
Most banks in Zimbabwe have units that offer small business advisory services and they will help you along.
lClive Mphambela is a banker and financial advisor. He writes in his capacity as advocacy officer for the Bankers’ Association of Zimbabwe. He can be reached on 04-744686, 0772 206 913, or email@example.com