Reasons Small Business Managers Should Keep Proper Financial Records
For some reasons, large numbers of small business owners are not keeping proper financial records for their businesses. Just imagine that business owners in key markets in Nigeria are keeping financial records.
Their reasons, however, vary across the spectrum – deliberate to avoid tax, lack of understanding, relevance and necessity are few reasons claimed why their artificial entities are financial record starved.
Why your small and medium scale business needs to keep proper financial records is not bullet point discussion. It is large, broad and consultants can talk about it for long.
Record keeping has advantages but startups, small business managers don’t always think the benefits are just too important to them.
Today, it would surprise you there are millions of business managers, SMEs owners without proper accounting records – erroneously, they think it is not necessary.
Some managers think keeping track of their business transactions is not necessary because they are not ready to expose their record to anyone –yet!
Interfacing with some small business managers, our research team also discovered they also think it is for those businesses that are taxable.
Surprisingly, many business owners that runs transactions worth millions of Naira are in similar situation.
A business owner said, “Why is it necessary, I know what I paid for the goods, and I have understanding as per the market price. Surely, I don’t sell below cost price.
“It is impossible for me to run loss. The most important things for me is receipts”.
This is a business that worth roughly N5 million. But he sees no reason to keep its financial transactions. While he is right about keeping receipts, his theory is whack.
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He could do better if there is business records to determine real profits and how the business has been growing.
SAMTL Limited, said in note that for entrepreneurs, corporate and business organizations, financial record keeping has always been an integral part of their entire business activities.
In fact, it is a critical component of both business growth and sustainability.
Since records and documents are the backbone of any business, it is necessary to store, preserve and manage those records so they can be accessed later to drive future business growth.
Regardless of the sector of business you work in, financial record keeping is extremely essential to maintain and regularize any kind of business looking to eventually scale, SAMTL explained.
Here are what SAMTL said about reasons why you should keep a proper financial record.
Allows you to manage your business and its growth
Physical records like statements, audit books, sales and purchase reports can let you know whether your business is developing positively or not.
It offers a window of proper verification which allows you to locate the loopholes and permits you to develop market-orientated business policies.
In summary, financial record keeping will help you track your business success.
Makes it easy to prepare accurate financial statements and reports
Proper financial records ensure the complete availability of diverse commercial documents such as profit and loss statements, balance sheets, etc.
These records are helpful to prepare accurate financial statements.
Allows quick accessibility to important information and documents
Sometimes we tend to forget things and because this happens, bad people might want to take advantage of this.
For example, let’s say a customer approaches you to buy some goods on credit and promises to pay the debt in 2 weeks.
Before the supposed payback date, he or she has come several times to buy goods and actually pay yet on payback day, this customer claims his previous debt has been settled.
The easiest way to exonerate oneself from a situation like this is to refer back to your financial records and verify the customer’s statement against the data available to avoid embarrassment for the business and oneself.
Allows easy access to loans and grants
Businesses might need to take loans or even seek grants not just to expand their business but to sometimes save the business from liquidation.
To access these loans or grants, you need to mostly provide financial records to show your business growth, strengths, forecast, etc. before the banks or institutions will approve your loan request.
If your business doesn’t keep these records, it will put the business in an unfavorable situation.
Helps in filing of proper documentation for tax and levies
Businesses are required to pay tax as taxes are an essential part of an economy as it supports government expenditure.
To know the appropriate amount your business has to pay in tax, you must have proper financial records to show your income, spend, etc.
These documents will help in allowing the business not be overcharged or undercharged by the appropriate tax authority.
In summary, record keeping is important in businesses, be it records operational and administrative activities or financial activities.
They serve as the memory of businesses and cannot be discounted by any small, medium or large enterprise looking to grow into a credible institution.
It is safe to say without accounting records, a business is unstructured. While you may be able to escape being taxed, you will likely find it difficult to obtain financing or do business with government or even structured companies.
Reasons Small Business Managers Should Keep Proper Financial Records
