Financial records are among the most important documents for all businesses, and yet many small business owners neglect this aspect of running their business.
This is a big mistake as well-maintained financial records can provide vital information about the state of your business, whether you are ready to expand or if tough times are ahead, and in some cases they are a legal requirement.
Below are all the reasons you need to do better at financial record keeping.
It allows you to understand the true state of your business and predict future financial needs so that you can plan for these well in advance. This becomes especially true once you are in a position to compare financial information for different periods, i.e December with February or 2016 with 2015.
2. Legal requirement
For formal business entitites (companies and close corporations) it is a legal requirement to produce annual financial statements within a certain period. Make sure you familiarise yourself with such requirements when you register your business.
3. Tax purposes
For tax purposes you need to demonstrate the income generated by you and your business and declare this (either as part of your personal tax return and/or in a separated return if your business is registered as a separate entity with SARS).
It unlocks funding. Whether you seek to borrow from friends, formal institutions or the general public, you need to convince the lender of the current state and potential future state of your business, both in terms of your ability to service the debt and the assets to be used as security. Accurate and up-to-date financial statements go a long way to making funders comfortable when they are assessing any application for finance.
All information courtesy of ‘The Essential Guide for Small-Business Owners’ by Nedbank.