Good administrative and/or accounting skills are often not the top traits one finds in entrepreneurs. Poor attention to detail and too many other demands on time and energy means that financial record keeping is “that one job” which can always be put off for another day. After all, the customer comes first! The problem with poor record keeping is that it leads to poor decision making, what is more, those bad decisions can literally cost you the business.
Why is it so important to have good house-keeping habits in business?
Firstly, good account-ability allows for good response-ability. The business owner who knows exactly how much turnover the business is doing and who can track the income versus the expenditure is better able to make informed decisions as to growth opportunities, finance sourcing, debt management, correct staffing levels and risk management. Information is the key to being able to respond appropriately to opportunities and threats alike.
When it comes to the mountain of paperwork (hard copy and digital) that businesses generate, having a place for everything and everything in its place is important in reducing stress levels (we feel more in control) as well as saving time in unnecessary searches and duplications. Good record keeping also allows the proprietor to delegate more effectively so that employees can assume responsibility for certain roles.
Accurate financial records have the significant benefit of encouraging investor confidence in the management of the business. Transparency is a building block of trust. Investors like to know that every cent has been accounted for and that there
is no wastage. A clear, efficient and ready-for-audit paper trail strengthens business relationships and faith that the business is in good hands.
There are also governance, legal and tax requirements that certain documents should be either generated, e.g. tax and VAT returns, or held for inspection, e.g. employee records and proof of expenditure. Many legal or accounting documents must be stored for five years or longer. The access to, storage and disposal of personal (confidential) information is further regulated by the Protection of Personal Information Act.
Simplicity is the solution. Develop a system that suits you and stick to it!
For more information, please refer to The Essential Guide for Small-Business Owners, Nedbank, pp15-16