From the course: Finance Essentials for Small Business

Record keeping

From the course: Finance Essentials for Small Business

Record keeping

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- Let's now turn our attention to the next area where new business owners tend to drop the ball. That is the area of poor record-keeping. Most new business owners hate to worry about the record-keeping. They would rather worry about customers and sales and innovation and growth and everything other than record-keeping. You need to track your inflows and outflows of cash so that you can forecast future cash flows. When I graduated from college with a degree in accounting oh, so many years ago, I naively assumed that businesses existed so that accountants could account for them. Accounting was the center of my universe at the time and I incorrectly assumed it was the center of everyone else's universe as well. I couldn't have been more wrong. I quickly learned that while proper record-keeping and adequate internal controls were essential to the successful running of a business, those features were not the business. You can liken proper record-keeping and adequate internal controls to the keeping of statistics in a football game. The person tracking the statistics is not on the field playing the game, but those statistics are very helpful to those who are on the field playing the game. All we're talking about here is developing a system of tracking your inflows and outflows, your obligations to others and others' obligations to you. It can be as simple as that. Depending on the size of your business, you can purchase accounting software off the shelf. There are a number of great products that will do the job with minimal training, but it is critical that someone take responsibility for keeping the books. Why is it critical? Well, three reasons off the top of my head. First, more accurate information about your business will assist you in running your business better. You will need information about cash inflows and outflows and about who you owe and who owes you. Second, if you ever need external financing, bankers or investors will insist on accurate financial information. They will need that information to assess business risk. You need that same information for that same reason. And third, taxes. Payroll taxes, property taxes, income taxes, the list goes on and on. You need a system that tracks your tax obligations to ensure that you pay the right amounts at the right times. If the government has to come in and do your taxes for you via an audit, remember, they don't work for you. They work for the taxing authorities. They will not be looking out for your best interest. That will not be their job. So get yourself a system for tracking your inflows and outflows. Get a system that will keep track of who you owe and who owes you. Get yourself a system that will provide you with the information that you will need to better run your business.

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