Protect Your Business with Good Record Keeping – Part 2

Image courtesy for FreeDigitalPhotos.net/StuartMiles

Image courtesy for FreeDigitalPhotos.net/StuartMiles

Maintaining good record keeping can greatly enhance your business practices. Continuing on from my previous article, here are some more ways to protect your business through accounts maintenance.

Business records are very important in identifying potential risks to the business.

With these records, the business owner can establish the products that most customers prefer and the ones will the least preference. Thus, the investor will reduce those least preferred products, limiting the risk of losses.

 

Good records can help verify all expenses and income for tax audit purposes.

Without accounting records, the auditor will only rely on estimations that could lead to major errors. The auditor may also be forced to use industry standards. These possible errors in the report can hit the business, leading to losses. The owner may be forced to pay more taxes than they would have paid if there were good records.

 

The business owner can also use the records as a reminder for their deductible expenses and credits.

The records will show the debts that the business owner should pay. By doing this, the operator will not have to rely on personal memory. The reports will also show all the people who should pay certain amounts to the business.

 

Most businesses use electronic record keeping, making it easier for the operator. These systems can capture all the expenses, generate reports and meet tax and other legal requirements. Business owners can consult their financial advisors or accountants to help them in choosing the best business accounting system.

 

For more bookkeeping basics, follow this link.

Protect Your Business with Good Record Keeping – Part 1

Image courtesy of FreeDigitalPhotos.net/StuartMiles

Image courtesy of FreeDigitalPhotos.net/StuartMiles

Good record keeping can help protect your business, measure your performance and maximize profits. It is critical to keep record of major activities in the business such as purchase invoices, sales receipts, transportation expenses, utility bills, bank statements, payroll records, and any other related business expenses.

Let me begin to outline the main reasons why business owners should keep good records for their small businesses.

 

Well kept accounting records can shorten the time taken to audit the business.

It is normal for an auditor to ask a business operator to provide business records. These records are used to verify the information filed on income tax returns. If the business owner has invested in good records, then the auditor will only take a few hours to complete the job.

 

Proper business records give the exact picture of the business operations.

These records show all the expenses that the business operator has incurred and the total sales made. Thus, the operator can use these records to estimate the expenses and income generated by the business in a given period.

 

Accounting records will also keep the business owner informed about the financial position of the business.

This means that the business operator can easily identify the areas of improvement and expansion. This will also help the owner in securing financing for the business. Business records can also help the operator to make decision that they may need to change the focus of the business.

 

My next post will continue on the importance of good record keeping and how it can help you business.

For more information on auditing, click here.

What is Accounting and Why Is It Vital

What is Accounting and Why Is It Vital

Accounting refers to the recording, measurement and analysis of monetary details of a business and is therefore a function that is critical to any business, not only for regulatory purposes but also to ensure the viability of the business.

There are various sub-sets of accounting. For example:

Tax accounting

Every business is required to report and pay taxes. Tax legislation can be extremely complicated and so this is a specialized area of the profession.

Financial accounting

Financial accounting deals with the preparation of a company’s financial reports. This is essential to provide information for the owners and stockholders, suppliers and the government about the financial performance and viability of a business.

Management accounting

Management accounting is involved with the measurement and analysis of financial data to assist in making management decision. This involves analyzing the reports and management accountants often use ratios to analyze results. For example, comparing accounts receivable with sales gives an indication of how long a business takes to get paid for sales made on credit. The longer this is, the more likely a business will encounter a cash flow crisis.

Auditing

a good accountant is vital

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Auditing involves checking the processes and procedures to give a degree of confidence that the financial reporting of a business is accurate. An audit will not generally be able to guarantee that the reports are accurate. Rather it examines the processes in an effort to minimize the potential for error and fraud. Larger companies often have an internal auditor (someone who works in the business) as well as an external auditor from an external accounting firm. Smaller companies may only have an external auditor and small businesses may not have an auditing function at all.

The day to day record keeping functions are generally done by a person called a bookkeeper although in small businesses the bookkeeper is often the owner of the business.

Larger businesses tend to have an accountant on staff and use external accountants for auditing and specialist advice whereas small businesses may use the services of a bookkeeper but tend to rely on the assistance of external accountants.

An ‘accountant’ is a higher skill level and involves considerable tertiary education. It is also important to ensure that an accountant is a member of a professional body that regulates the actions of their members and ensures continual professional development.

However, as we said at the beginning, the accounting function is critical to the success of a business and ensuring your business gets this discipline under control is vital.

 

Here is a video about why accounting is important


Until next time,

The Ken

Welcome to The Ken Small Business Blog

Business advice

Image courtesy of photostock / FreeDigitalPhotos.net

People start their own business for all sorts of reasons.

For some it is because they have a great idea that will benefit other people and they can see the possibilities that can come from it.

For others it is because they think they can do a better job than their current employers. Or they get disgruntled thinking that their employer is getting rich from all their work. So they decide to set up their own business and do it themselves.

Then again it may be a natural progression. For example, you may have done an accounting degree and worked for another accounting firm to get experience, but your original goal was to start your own firm.

Some people say they are unemployable. They can’t work for someone else so they go to work for themselves.

Others think it the best way to get rich. You’ll never get rich working for someone else.

And then others just want to have a go at working for themselves while others start their own business simply because they cannot get a job.

Wikipedia (http://en.wikipedia.org/wiki/Entrepreneur) says ‘In political economics, entrepreneurship is the process of identifying and starting a new business venture, sourcing and organizing the required resources, while taking both the risks and rewards associated with the venture.’

This really classifies anyone who starts a business as an entrepreneur.

However, some people are forced to start their own business. For example, it is not uncommon for a business to only engage contractors instead of employees because of the risks and costs involved in being an employer. So someone who would otherwise have been an employee becomes a business owner. They only work for one company and have regular employment with very little risk. That’s not to say there is no risk. Because if a company does not have any work then the subcontractor could be the first one to miss out and not receive any income either.

A true entrepreneur does take risks and that may be why the failure rates of business are so high. But many people who own a small business take minimal risks and simply want to make ends meet. They are not really interested in growing their business or doing anything to improve.

This is unfortunate because building a successful business is one of the best ways to increase your wealth.

So this blog is dedicated to those small business owners who actually do want to achieve success and use their business to increase their wealth.

We hope you enjoy our content and find it useful for your success.

The Ken