Today we feature our guest blogger, Kim Roberts. She graciously volunteered to share her expertise on bookkeeping:
One of the things that struck me most is that several of the business persons had little to no financial record keeping in place.
It was shocking and a little appalling to hear that businesses that had been functional for years, had little to no record keeping.
Here are three ways small business owners cheat themselves by not keeping appropriate financial records:
1. Your potential investors and lenders want your records.
This was the part that stood out to me. All of the entrepreneurs on the show were seeking funding from finance organisations. However, very few of them had financial records of any type.
In fact one of them was described by the judges as not having so much as a ‘number’ with which to start.
There are very few if any financing institutions that will loan or give money to businesses without appropriate financial records.
It’s a common complaint to hear that small businesses don’t get any support from commercial banks, but a key part of the support or loans that they are requesting lies on the ability to payback.
Individuals who receive loans from financial institutions do so on the basis of payslips and assets and existing loans and expenses. Small businesses should not be expected to be any different.
Appropriate financial records will significantly help your case in securing financing.
2. Customer queries go awry very quickly.
I once employed the services of a small business owner and upon paying was surprised that there was no receipt forthcoming.
It was a strange state of affairs to me as I had become accustomed to getting receipts with all of my services. I consider receipts the most basic of financial records.
A few months into our service arrangement we had a minor disagreement about whether the fees for the service had been paid in full. I was quite sure that I had paid in full and my service provider was quite sure that I hadn’t!
Had there been a receipt book, the issue would have been much more easily clarified. In my case we were able to come to an amicable resolution but it could have been clarified so much more easily with aid of a receipt book!
3. You don’t know if you are making money!
One of the best ways to assess the performance of a business is examining the financial statements of a business.
When you don’t do this you rob yourself of the opportunity to see where you need to take cost saving ventures for your business. Without those financial statements you can’t compare the performance trends of your business and what that might mean for future growth.
If you aren’t keeping records, how do you know if your business is profitable and worthwhile as a continuing venture?
The short answer, you don’t!
There are more advantages to appropriate record keeping than summarised here but the moral is the same.
If you are in business you need to keep good records and accounts.
Kim is a chartered accountant by day and a beauty blogger by night (http://bajanbeautyblogger.com)