Introduction

Good record-keeping techniques and a steady cash flow are essential for business growth. This distinguishes an innovative idea, product, or service from a good business. It is impossible to identify a company’s exact financial situation or profitability without adequate records. As a result, a business owner or founder should recognize the need for appropriate record-keeping from the start.

The importance of maintaining accurate corporate records cannot be overstated. Every serious business owner must keep accurate records of all business transactions. Proper financial record keeping is critical to survival and growth. Without it, the entrepreneur risks running out of funds, squandering resources, and missing expansion chances. Maintaining accurate records of your transactions will better position your company to conduct proper assessment and analysis to evaluate its performance regarding its own goals and those of other companies.

As a business owner, whether you have finance or accounting experience or not, you must decide how to handle your financial records. The amount of time and attention put into this activity may determine the business’s long-term sustainability. Depending on the sort of business, the business goals, and the management requirements, the business owner must define the “why,” “what,” “how,” and “who” of financial record keeping.

Why? The Importance of Keeping Good Financial Records

Improved Decision Making: Reliable and accurate information needed in management choices can only be obtained from available records. While the availability of adequate records does not guarantee that the owners will make the best judgments, their absence diminishes the potential to make excellent business decisions. It enables firms to better plan by understanding their primary operations and where they currently stand.

Oversee operational activities: Records can show if a company’s operations are expanding or contracting. It adds an authentication layer that allows management to spot operational flaws and create solutions. The financial statements should give financial data that assist a firm in operating more effectively and profitably.

Dealing with customers and suppliers: Relying solely on customers and suppliers to give balance statements may result in a loss of money, mainly if there are no internal records to compare it against. Good record-keeping enables businesses to keep track of their debts and receivables for items produced and services performed. It helps a company know how much it owes before the supplier does.

Create management and financial accounts: The data required to prepare accurate financial reports and statements do not appear out of nowhere! This is only feasible based on accessible financial information. A robust record-keeping system ensures that all essential papers and data are available to generate profit and loss statements, balance sheets, and other accounting records.

Dealing with all stakeholders: small businesses and startups with proper records communicate information more effectively to people and organizations that use a company’s financial information, such as banks, tax authorities, suppliers, creditors, current and future investors, leasing companies, and so on.

Organization: When you are well-organized, you can quickly and readily discover knowledge on any topic related to the company. This can be the difference between getting and losing a job.

Cash flow planning: Everyone should plan their cash flow. Good record keeping will be quite beneficial in this respect, especially regarding liabilities that the business must settle.

File your tax return correctly and save money. Tax authorities rely on records more than anything else. While an accountant, auditor, or any other stakeholder may be lenient in the absence of documents, the taxman is not. In the absence of records, the taxman has the authority to issue a “Best of Judgment” assessment, which is usually far higher than the assessment that would be issued if the data were accessible. The taxman will often disregard any spending or assets that do not have supporting documentation.

Keeping records as per the law: It is a legal responsibility to retain accurate records. The Companies and Allied Matters Act imposes standards on preserving books and records when establishing a business, regardless of its size. It is critical for a firm to be aware of its legal obligations and to be able to generate the necessary information. So, by being organized, you not only get all the benefits listed above, but you also stay within the law.

What? the financial records that are to be kept.

The financial records that are to be kept vary from business to business. To be safe, anything and everything that has to do with a company should be stored safely.

Some examples of the following should be meticulously kept:

Company incorporation documents

All contracts and agreements

Bank records

Sales invoices

Delivery Notes

Credit Notes

Goods received notes

Purchase invoices

Goods return notes

Inventory count sheets

Fixed asset valuation records

Cash receipts

Quotations

Estimates

Work orders

Job completion certificates

Timesheets

Expense claims

Vouchers

Management accounts

Company valuations

Financial accounts

How? The way financial records are kept

The underlying dilemma is whether to use an automated or manual record-keeping method. Using a computerized system is the prudent course of action. It is widely recommended because of its fast speed, reporting flexibility, dependability, lack of regular labour, greater correctness, incorporated controls, and backup and record restoration simplicity. More about that may be found here.

To automate the accounting process and maintain data, a firm can use simple and easy accounting software designed for small enterprises and startups.

Many small business owners prefer to use business software to keep track of various parts of their firm; others do it manually. Nevertheless, a wise strategy will integrate the most successful features of both. The key to fully utilizing bookkeeping software is determining whether it saves you time and allows you to focus on operating your business.

Who is responsible for keeping financial records?

The ultimate obligation for record-keeping rests with the firm owner as the CEO (Chief Everything Officer). While the company owner must have a complete understanding of the business by regularly checking your records, businesses should engage a professional accountant to manage it so they can focus on developing the firm. On the other hand, some record-keeping tasks are better left to a professional accountant.

Bonus: Improving Your Handling of Financial Records

Keep All Business Activities Separate

When personal spending is mixed up with corporate expenses, it becomes challenging to identify which records are for which. A few business owners have many firms and mix up operations for each one, such as paying one business’s rent from another business’s bank account. Financial discipline is required to maintain separate company documents separate.

The most convenient and practical approach to separating a business is by registering it and opening individual bank accounts.

Reduce your reliance on cash.

As far as possible, avoid using cash for company costs since it sometimes lacks the essential paperwork required for financial records. It is easy to forget how and where the business spent money without sufficient documentation. It is preferable to use a card, check, or online transfer instead of cash because there is a paper trail to follow, and this habit will aid in keeping track of spending. When using cash instead of other forms of payment, make sure there is a thorough audit record of what was spent.

Participate in functional mapping of the chart of accounts

A chart of accounts serves as a template for the complete accounting recording system. It functions as a high-level directory for determining “where” transactions should be logged. While there are a few accounting norms to follow, such as separating assets from costs, every business owner or startup founder should have a general notion of how they want their financial records to look. The fundamental advantage of using a chart of accounts is that it allows for fast analysis of company activities and their consequences. At a glance, for example, how many sales have been produced, how much rent has remained to be used, or how much has been spent on a trip in a certain period. This can only be ensured by a functional and realistic chart of accounts.

Establish Standard Financial Record-Keeping Policies and Procedures.

Establish rules and processes for record-keeping, especially for financial records. As previously said, while there are a few accounting conventions and practices regarding financial record-keeping procedures, one does not need to be a finance expert to have appropriate record-keeping systems in place for their firm. For example, a policy in place may be to have contracts in place for all credit sales. The overall goal is to guarantee that all information and documents relevant to a business or startup are securely saved for future reference and can aid in generating financial reports that illustrate where a firm stands at any given time.

Regularly review records.

Make it a habit to keep your records up-to-date regularly. It might be daily, weekly, or monthly, depending on the number of transactions. Creating a timetable can help you remain on top of your financial records, provide you with an overview of how your business is performing, and allow you to handle your cash flow.

Use appropriate accounting software.

Take the time to evaluate the accounting software that will be most advantageous to your company. If you are unsure which software to use, speak with an accountant who can provide expert assistance. Accounting information may be accessed via cloud-based software from any location with an internet connection. Although online software will back up your information to a cloud-based storage location regularly, it is still suggested that company owners save physical copies as well.

Maintain an Extensive Record of Accounting Documents

Businesses are expected to keep accounting records in compliance with legal record requirements; not only must the documents be saved, but they must also be sufficient to illustrate and explain the business’s transactions. Accounting records for your firm must include a history of all the assets and liabilities of the company, daily entries of all quantities of money received and spent by the company, and the items for which the receipt and expenditure occurred.

Invest in a Skilled Accountant

Depending on your company’s structure and accounting requirements, you may need to outsource or hire an experienced and qualified financial specialist in-house. Business owners may build their company while knowing that their documents will be updated.

Conclusion

Accounting for startups and small enterprises includes keeping accurate financial records and analyzing finances to uncover chances for development and improvement. To stay organized, boost productivity, secure funding, control costs, and identify potential risks, startups and small enterprises must have a good accounting foundation.

Do you have any problems keeping financial records? Contact us right away.