What are the Consequences of not Keeping Proper Books and Records

Have you ever wondered why Doctors emphasizes on the importance of a health passport? Even if the treatment was minor, it is recorded in the passport. What has not been written has not happened. Keeping accounting records of your business is very important even if the business is microscopic in nature. You incur many costs if records of your business are not recorded properly or no records are kept and believe me, you will pay the price at a future date.

Accounting records required to be kept include income, expenses, assets, liability and any other transactions. Being complete means that all records are accompanied by documents vouching occurrence and completeness of the transaction.

Below are consequences of poor/no records.

  1. Poor/ Inaccurate Business performance and Position

Good performance and position of a business is as a result of forecasting, monitoring and controlling activities towards the set target. One may wonder how you can check performance using inaccurate records or where no records are kept. A question one should ask is, where do you want your business to be after a certain period of time? Records will guide you how to reach that target. Accounting records will guide at each stage how far you have moved and what to do to reach the target.

  1. Poor Management & Decision making

Whether you are running a small, medium or (large) enterprise, you need to be making decisions on how grow your business. Decisions are made in reference to records. Decision such as how to operate, how much to order, what skills you should recruit, at how much to sell etc. need to be taken serious to move forward. With poor records decisions are distorted lending your business to move towards a wrong direction. There might be situations where you need to make strong decisions to achieve a set goal. For you to plan about the future of your business, you need to see what other decision brought into the business. This can be in terms of profitability, growth, productivity or business performance in general.

Keeping accurate records will help to make tangible decision. Certain expenditures can be controlled and this is done upon analysing the impact of the transaction of the performance of the business.

  1. Business inefficiency

Imagine your customer has asked you to give him/her a detailed summary of his/her statement last year, will you be comfortable to produce? Your employee requesting his records for the past 6 months? A potential investors asking for your business performance for the past seven years? (Or being accused of fraudulent activities). How long can it take for you to process the required info determines how efficient your business is and how healthy your business can go. Records are to be readily available if a business is to move forward. Keeping NO records or inaccurate records affects your business and it deters growth.

  1. Inability to control your business from theft and fraud

If you don’t have proper records, you can’t control your resources. Stock (what you are selling) and fixed assets (assets being used in your business egg computers) can be easily got stolen. Proper records helps you to trace every aspect of your business hence such cases can be easily controlled or you can sue for a particular act where your records are in order.

  1. Legal costs

One of the painful costs as far as business is concerned is legal/statutory costs. For example, for the purposes of Taxation in Malawi, a business should keep records for Seven (7) years. Taxation Act 54(1). If you go against the statutory requirements you can be charged to pay penalties for non-compliance.

  1. Inability to identify strengths and weaknesses of your business

One important thing to do in business is to sit down, take a cup of coffee and identify areas of strengths and weaknesses. This is done in reference to your business records. This will help you to manage changes and improvements of your business.

Looking at the consequences above, one can tell that record keeping plays a larger in enhancing business performance. You need to make sure at cost that accurate accounting records are kept. You can consult to be assisted on how best you can enhance record keeping. The records can be kept manually, electronically depending or both depending on the nature of your business. The issue of manual v electronic bookkeeping is the subject of another day.

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top