Strongpreneur#Business Growth Strategies
February 23, 2019 226
Strongpreneur#Business Growth Strategies
February 23, 2019 226
The session on basic record keeping and accounting systems emphasizes the barest minimum financial recording, which must be used by owners and managers of small and medium enterprises.
This article is intended primarily for proprietors of small business who are interested in selling up basic records which can be maintained by persons with little or no experience or training in bookkeeping or account.
The record keeping discussed in this article is so simple that it can be kept and maintained by the small business owner himself or by an employee with ordinary clerical ability.
For both potential and existing business owners, experience has clearly indicated that an adequate record keeping system helps to increase the chances of survival and reduces the probability of early failure.
Similarly, for the established industrialists, it has been clearly demonstrated that a good record keeping system increases chances of staying in business and of earning desirable profits.
Record keeping can help entrepreneurs of small enterprises keep their business on a sound basis. Many small businesses seem to have the potential for success; many owner-managers are good craft men and offer services or products, which attract customers. In many cases their sales are good but because of poor record keeping, some of these businesses fail.
In most cases, the poor business operation has been attributed to inadequate or inexistent business records. In some cases, the records may be good but the owner-managers lack the ability or experience to use them. But before you use this valuable information, you must first make a timely recording of them.
Many at times, some entrepreneurs do not know the current score of their business, because of the inadequate records or because of not keeping records up to date.
A good record keeping system must satisfy the following requirements:
Everyday bits of information flow into a small business. As customers are served, pieces of information are generated about sales, each, equipment, purchases, expenses, payroll, etc. The followings are the basic records, which should be kept in your business.
There are more recordings to be made as you progress in your businesses. Note, the basic ten financial records mentioned above when properly kept, updated and organized by yourself or a qualified bookkeeper or accountant will enable you to have a picture of your business operation.
Once a system of record keeping has been set up, the question is “who will keep and maintain the records?”
Seven possibilities are open:
It is obvious that you, as a businessman, cannot do the entire recording above, in addition to taking vital business decisions, supervising the work and coordinating the activities of your subordinate stall.
Otherwise, you may end up with hypertension unless you are exceptionally hard-working, and possess a rare type of mental and physical health.
You, therefore need to allocate some of the jobs to your subordinates like the Administrative Officer, Production Manager; depending on the size of your business and the volume of work to be performed. By so doing, you will be able to devote your usually precious time, to taking vital business decisions and coordinating the activities of the various departments.
You will then need feedback from the officers to whom such assignments have been delegated, by way of reports statements, and so on.
Your various records, which may, later on, be combined into a set of books by yourself, a qualified bookkeeper or accountant is like a roll of exposed film. The latter must be developed before you can see the picture. Similarly, your records contain facts and figures, which make up a picture of your business. Three basic financial statements that you must have, understand and use in running your business are:
In most cases, you will need the services of an auditor or accountant to prepare these basic financial statements for you. An auditor is a professionally qualified accountant who checks the accounting records and documents of his clients and prepares the financial statements, which will show a true and fair view of the financial position of the business.
Consider this illustration, when you see the photograph after it has been developed and printed, you either judge it as a beautiful or bad picture. If it is stained, you may think it is due to too much lighting or lack of lighting. If it is unclear or hazy, you might say, the object moved during the picture taking process. Based on this analysis, you try to do better next time.
In the same manner, the financially qualified pictures that can be taken from the recordings of your small business operation may show some aspects of the firm that may stick out like a sore thumb.
Some of the questions are simple, but an adequate system of records would answer are:
While you the small industrialists may learn the basics and intricacies of small business record keeping, there may be some financial aspects of your business for the time being, that you cannot fully cope with; for that reason, you will need some advice and assistance from professionals.
Within your immediate area, there are surely qualified bookkeepers and accountants. You may either hire them or benefit from their services on retainership basis.
These experts, bookkeepers, accountants, etc., in addition to analyzing the profit and loss statement and pointing out areas which need control in your business, can also advise you on other aspects of your business; financial management, production management, marketing management, technological development and all other aspects of your business operations.
Even with the presence of these various types of assistance, before they can give you the necessary assistance, they will need some information about you and your small business. Your record keeping is the most essential source of information.
Having recorded all financial transactions of your business the need then arises, to logically arrange the data generated in such a way that they can be meaningful and useful to your business or any other user.
This logical arrangement is mainly in the following two forms of financial statements:
The accounting report that summarizes the revenues and the expenses of an accounting period is called the income statement (or the Trading Profit and Loss Account). Statement of earnings or statement is subordinate to the balance sheet because it shows, in some detail, the items that together account for the change arising from operations during an accounting period in one balance sheet item, i.e retained earnings.
Nevertheless, the income statement is regarded by many to be more important than the information on the balance sheet, because the income statement reports the results of operations and indicates reasons for the company’s profitability or lack thereof. There is, in practice, considerable variation among companies in the format used for the income statement. The following illustrations are two conventional income statements.
This is defined as a classified list of the debt and credit balances remaining on the books after the preparation of the Trading, Profit, and Loss Account, including the closing stock, such balances are assets and liabilities. The purpose of preparing a Balance Sheet is to present a true and correct view of the financial position of the business at a given date.
Liabilities: Under the liabilities are listed businesses or owners’ interest otherwise known as:
(b) The balance of Profit and Loss Account
In the balance sheet, the total of the Fixed Assets plus Current Assets are equal to the totals of the liabilities plus share capital and reserves.
A typical Balance Sheet is presented in a “two-sided” or “horizontal” form. The balance sheet can also be presented in a “vertical” form. The vertical form of presentation is preferable for the following reasons:
The difference between the two is often referred to as the “net working capital”.
Since it is the primary objective of any prudent entrepreneur to make profits, the management of the assets (fixed as well as current), must be given adequate attention. It is equally very important to manage these assets efficiently in order to serve both the equity capital and loan capital of the business.
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