Previously, I wrote about the consequences for not keeping proper books or records. The consequences mentioned were as a result of not accounting for your business. First of all, let us look at what does it mean to account your business. Without looking at size of your business, you probably need to take each and every single transaction into your books or records.
Thus, when you buy you need to record answers to the following questions. What have I bought? Whats the Quantity? From who (where necessary)? Which date? At what cost? What any other cost incurred in relation to acquiring of the mention item (e.g. transport, communication, labour etc.)?
Similarly, when selling the mentioned item you can record answers to the following questions; what have I sold, Whats the Quantity? To who (where necessary)? Which date? At what price? Is there any discount? What any other cost incurred in relation to selling of the mention item (e.g. transport, communication, labour etc.)? For service provider, consider what you have spent to make you have that ability to deliver the service and keep tracking. I see you feel it sounds simple, is it?
The issue of accounting for your business is that simple. But sometimes you may need expert hands to formalise the system, either by just setting up a system which can help you have a clear path on how you can account for your business or take it all to the expertise so you can only focus on business growth.
Here are the reasons why it is essential to account for your business.
HELPS TO BUDGET INCOME AND EXPENSES
it’s really important to know how much money will be needed to run your business. The simple question I may ask you is, tell me how much money you are going to spend for the next three months? If you don’t have an answer it means you are not accounting for your business and you need to start NOW! I mean NOW!
The budgets will help you to control the expenses as you go. It also gives you an alert on how much cash you need to keep inorder to keep your business rolling. Based on your current records, you can also forecast the income you are going to derive in future dates. Do you know why it is important? The forecast income acts as your point of focus and you are driven to reach and go beyond the forecasted income. In a team, the team is determined and motivated to accomplish the challenge to reach another level.
HELPS TO MEASURE AND ASSESS PROGRESS
There are two positions that may help you know your next position, your current and previous positions. I feel sorry for those who say their businesses are not progressing yet they are not measuring. They even feel they are progressing looking at the fact that they are making profits, yet in true sense, they are moving backwards.
People refuse the fact that profit is not equal to cash and vice versa. Measuring progress is even more essential for small business since they have a dream to grow. One important thing to note is that when business is growing it requires certain activities, approaches to maintain the growth and it becomes a problem if the growth has come as a surprise.
KNOW YOUR PERFORMANCE AND POSITION
Some people consider performance being similar to progress though it’s open that the two terms are totally different. Merriam-Webster dictionary gives us these definitions: Progress: the process of improving or developing something over a period of time. Performance: a: the execution of an action. In this context, Performance refers to profitability and position refers to the state of your business.
Large sales volume does not mean you are making profits and the same applies with having surplus funds. When you are accounting for your business, you also know how profitable your business is and what is the current position. The comparison between years also helps you to make sound decisions on what areas you need to revise and what activities are to be maintained. A good example is where you increased advertising budget and there is no impact on sales at all.
SAVES TIME, ENERGY & RESOURCES
Whether you are keeping records or not there might be time to know what happened with a particular transaction. You might recall searching a certain payment to assess how much someone owes your business. Spending much time, energy and resources which can be automatically saved in place of accounting. Where you have an Accountant/ outsourcing the services, this becomes even more efficient since what you only think is how to grow your business. I wonder why others complain that they can’t account for their businesses because the business are very small. Pardon! You need to revisit that philosophy and come up with tangible reasons. When your primary focus is running the business, you always find a way to go through.
ACCESSING ESSENTIAL INFORMATION ABOUT YOUR BUSINESS
Do you know at what price you can sell to cover all costs (Breakeven)? What profit percentage are you getting from each sell? What costs can you avoided/not avoid? The answers to the questions are just asleep in the accounting of the business. Knowing you breakeven is said to be essential since it tells you that any sell beyond that will attract profits.
Generally, Accounting for your business is essential regardless of size of the business. You can contact us if you want to hear more or you need help.