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Record Keeping Skills For Small Business

by Olufisayo
Published: Last Updated on
Antrix Corporate Solutions Ltd
Record Keeping Skills

Why keep records?

The law requires that some form of written records be kept by all businesses and adequate records can answer the following questions:

  • How much profit is the business making?
  • How much is the business worth?
  • How much do credit customers owe the business?
  • How much does the business owe its creditors?
  • How much tax should the business pay?

How can a record-keeping system be established?

A. Before establishing an adequate record-keeping system, the assistance of an accountant should be obtained. If the owner cannot afford an accountant, he or she cannot afford to be in business.

B. An accountant can establish a suitable record system tailored to the needs of a particular business.

What will others want to know about the finances of a business?

Various people will want to know about the financial conditions of a business. Bankers may be interested because you have applied for a financial loan. Tax collectors are interested in your business condition, as are partners, relatives, and others who may have lent you money.

Suppliers will also want to know things about the finances of your firm because when they ship you merchandise for which you have not yet paid, it is as though they are extending a form of credit.

Specific questions they might ask include:

  • a) How much do you own, how much do you owe, and how much are you worth?
  • b) What was your income last year?
  • c) How much of your sales are for cash and how much are for credit?
  • d) What has been your collection record?
  • e) What is your total “overhead” and what percentage of gross sales does it represent?

Types of records a small business should keep?

A. Online Payroll Services: The owner must know the amount paid to himself or herself and to employees. This information alone requires a mini-accounting system to keep things accurate and in order.

B. Cash Balance: The owner must know how much cash is available at any given time to determine if bills can be paid. Money comes into and goes out of the firm every day, but without records, entrepreneurs would not know what they can afford.

C. Accounts Receivable: Under certain conditions, the owner extends credit to some customers. The money owed is called account receivable:-They are important records. When to discontinue credit? When to make aggressive efforts to collect overdue bills? When to charge interest, if any?

D. Accounts Payable: The amount of money owed by a business to others (such as suppliers) is called accounts payable.

These bills need to be paid on time for two reasons: (1) sometimes by paying a bill on time you will receive a cash discount, and (2) you must maintain a good reputation in relation to those with whom you do business, without accurate records you may make mistakes.

E. Inventory Records: Even in a small retail business, an owner must have control of inventory. What products are selling? What products aren’t moving? Is there a good supply on hand? Entrepreneurs can keep some of this information in their heads, but not enough to do the kind of job necessary to make a profit.

F. Government Requirements: The owner must file financial statements for tax purposes. Taxes are calculated on the profit a business earns. Even a small retail business must file certain reports.

G. Financial Statement: At least once a year the owner should have a comprehensive financial statement on the business prepared – this is similar to an individual having an annual medical check-up.

How well did the business do in terms of total sales? What were its expenses? What are its profits before and after taxes? What can the owner do to improve things next year? When borrowing money, entrepreneurs must present such a statement to a banker; if they want to sell their business, they must show financial statements to prospective buyers.

Who should be responsible for keeping the financial records?

A. Keeping the records yourself: If the business is small and you have some experience, you may be able to keep the records for your business yourself. Remember: when you are doing this job, you are preventing yourself from doing some other task for your business, perhaps a task that only you; the owner can perform.

Plan on delegating the record-keeping functions to someone else as soon as possible. But you should still always understand the system and be able to “step in” at any moment if the record keeper leaves or is sick.

B. Assigning an assistant: If you employ others, one of the first jobs you may give to one of your employees is that of keeping all or some of the records.

All employees have some record-keeping responsibility since they make out sales slips, operate the cash register, and in many ways perform record-keeping tasks which you think will be accurate. It is your responsibility to train and instruct this individual and periodically evaluate the methods used.

C. Hiring a full-time bookkeeper: When you are large enough to do this, you are in a good position to secure a competent person who will frequently know more about records than you do. This is a difficult area for some businessmen to delegate.

They feel that they must keep their own “hands” on the books, but he frequently confuses the record keeper and sometimes weakens his or her position. State your wishes and requirements, and let the bookkeeper do the job!

D. Contracting the service out: There are many firms that sell various record-keeping services. These range from an annual audit with the preparation of a profit and loss statement and balance sheet, to weekly payrolls, daily sales analysis, and inventory control and analysis.

E. Accounting department: Eventually, if size warrants, you may have your own accounting department headed by a comptroller or an officer within the firm, usually the treasurer.

The department would maintain a full set of books, including accounts receivable, accounts payable, and general ledger accounts. Mechanical or computerized record-keeping equipment may be feasible, depending on the volume of information needed.

If you have a lot of information to keep track of automation really comes in handy. With it, you’ll be able to have a completely paperless accounts payable process, which in turn will save a lot of space in your office, and make things easier to track.

F. What expenses do you have?

G. What is the present value of buildings, equipment, vehicles, fixtures, and other accessories?

H. What items of inventory are the best and worst sellers?

I. What are the most profitable and least profitable departments?

J. Are you taking full advantage of cash discounts, trade discounts, and advertising and merchandising allowances?

Photo by olia danilevich from Pexels

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5 comments

Victoria June 3, 2011 - 12:43 PM

I like the answer for Qs.4 but for Qs.2, accountant should be obtained but not neccesary. Some people went into business with competence knowledge and there are government websites provide step by step manual to set up record-keeping system for small business.

In my opinion, it’s extremely inappropriate to say ” If the owner cannot afford an accountant, he or she cannot afford to be in business”.

Olufisayo June 3, 2011 - 12:56 PM

Thanks for your comment and your opinion Victoria.
On the issue raised about “If the owner cannot afford an accountant, he or she cannot afford to be in business”, not all countries have a government that has provided a manual and in my opinion with making sure you file some tax reports etc to the government, one would need an accountant if not a chartered accountant as the case may be.

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