Amongst the challenges of a small business owner are ability and discipline to keep proper records of the business. This is not very surprising as we have a culture of not keeping personal records and that is probably why it is difficult to keep business records. A few years ago, I struggled to write down all my monthly expenses for a proper analysis of how I was spending my money. I failed several times before I got it right. I did not have the consciousness to collect receipts or invoices for many of my purchases and expenses because nobody was going to ask me to account for what I spent. This attitude is not good for business.
Books to Keep
Bookkeeping simply means writing down all the money that the business receives (receipts) and all the money that it pays out (payments). You need to keep business documents to be able to keep your books – receipts, deposit slip, invoices, bills etc. It is difficult to track the performance of a business without keeping appropriate financial records. The good news is that you do not have to be an Accountant to be a Bookkeeper or to keep records of your business. As a business owner, you are expected to open a separate bank account for the business. The bank statement can facilitate the keeping of other records if most payments are made by cheque or transfer from the bank account.
Other books that should be kept include:
(a) Cash and Credit Sales Record (b) Cash and Credit Purchases records (c) Record of debtors and creditors updated with receipts and payments (d) The Cash Book – records of cash received and paid for whatever reason, including payment for small expenses such as recharge cards and taxi expenses (e) A Cheque Register with columns for cheque number, date, beneficiary, purpose of the payment (if the payment is by transfer, then the transfer details should be similarly recorded) (f) General Ledger – accumulation of all business transactions from other records (g) Bin cards to show regular stock received, issued out and stock in hand for every item (h) Receipts, invoices, bills, letters and all documents with financial implications. (i) Summary of income daily, weekly or monthly from receipts, invoices, bills etc
The Importance of Bookkeeping
Complete and accurate record keeping is crucial to the survival of a business. It is the basis of knowing how well the business is doing, and bankers are very interested in it. The commercial bank is not a charity organization. A business has to be on a good footing to attract funds. One of the reasons why small business owners cannot get loans from banks is lack of reliable records. Therefore, before you complain that you cannot get money to expand your business, first be sure that you keep proper records of your business transactions and activities. Record keeping will help you monitor your business and provide the basis for planning and budgeting. You need to keep reliable records to know what your real profit or loss is and how to ensure that you have cash to meet the needs of the business. With proper record keeping, it is easy and cheap for an Accountant to prepare the financial statements and reports required to manage the business effectively and to satisfy the requirements of the tax and other statutory authorities.
Tips for Effective Bookkeeping
(a) You do not need to use accounting jargons to keep records if you do not have the knowledge. The records can be kept in simple notebooks, appropriately ruled to accommodate columns for the required information. And if you are computer literate, the records can be kept in the system using, for instance, Microsoft excel or word. (b) Consider the use of simple accounting systems as the business grows. (c) Make it a habit to collect receipts, invoices or bills for all transactions no matter how small the amount may be. Keep receipts and invoices safe in a file jacket for subsequent analysis. (d) Where possible, let somebody else handle the payments and receipts of cash to ensure adequate documentation. Give the person an amount of money for all expenses, and request him to keep relevant documents in order to account for the money to you. (e) Record keeping is an everyday affair and should not wait till the end of the year when you have to make returns or prepare audited accounts. (f) There should not be one set of books for the bank, and another set for the tax authority. Integrity and accuracy are important in record keeping (g) Use a payroll software that can produce pay slips and effect all deductions including taxes and pension. Auditors can come from the tax authorities or Pension Commission to check the records for compliance from time to time. (h) Get an Acountant or a Bookkeeper to prepare accounts periodically from the records There will be more about record keeping in future editions because of the important role it plays in the success of micro, small and medium enterprises.
Originally published on Beckley Consulting Newsletter