InfiniBiz > Finance & Investment > Keeping your books in order

A key factor in appropriate management of finances and financial records of a company is solely dependent on the skill and the ability to produce such records and regular maintenance for reference purposes. The most essential skill in business should be financial analysis, which should be good enough for the business you intend to set up. Properly maintained financial records will show much money or profit are you making, giving you a better perspective of what is in store for you, and are you able to expand or grow in the near future or beyond.

Small businesses normally depend on accountancy services from external personnel to compile their financial statements and annual tax returns. You may also feel that these services are quite expensive, consider the impact their fee would have on regular bookkeeping activities throughout the financial year. It would be quite helpful to have someone within the company to accurately manage the financial statements and reports on a routine basis. That could be you too, as you are the only person who you may trust to create proper accounts.

Businesses should maintain a proper set of accounting records throughout their financial year. Of course, you may feel that you could gain more if you spent that time in selling your products, but there is no compromise for time spent to produce accurate and timely financial information, which can be deduced from your accounts. Consider the following advantages of proper bookkeeping.

You can watch over the success or failure of the business. This gives you a birds-eye view of all the happenings in your organisation, thus the ability to monitor the financial position in a better way. It will also allow you to make note of and take corrective measures for any excessive spending of funds and/or leakages occurring within the organisation.
Informative decision making. On evaluation of your financial statements you can analyse the effects of each decision on your business. Without the availability of proper records, any decision made would remain immeasurable and the financial impact may be unforeseeable.
Ease in seeking financial assistance. Banks and other financial institutions require businesses to present their accounts properly. To seek funding in the form of loans from these institutions, you will be required to put forward an acceptable business plan for the forthcoming financial period, or for the period during which the loan agreement exists, whichever is agreed upon. The decision will be based after the evaluation of your business performance, and perhaps the ability to repay in the period agreed.
Obtaining capital. Businesses do require additional assistance in the form of finances or experience as they grow. Compared to loans, equity is considered to be a better way of increasing investments in the company, where there is no obligation to make a regular payment of interest (regardless of profit or loss) throughout the term of the contract. An increase in capital can be financially relieving for a company, and where the investor is willing to become a partner in the business the responsibility of managing the business is distributed. In such an event, the prospect would want him/herself to be extremely familiar with the financial position of the business before stepping in.
Preparing budgets. Whenever plans for the forthcoming or subsequent years are made, the current and previous financial statements are analysed, and a budget is prepared. The budget consists of the expected inflows and outflows in terms of cash, the expected profitability, an analysis of costs to be incurred etc. In fact, budgets help you keep yourself on track with your expectations for the proceeding period(s), which is of high interest to any financial institution or independent investor.
Preparation of tax returns. A set of proper financial statements, especially if they have been prepared according to the guidelines of the Companies Act and the Inland Revenue, will always assist in filling in your annual tax returns. You may be able to avoid any over or under payments of taxes. Each business type is required to produce appropriate tax returns as instructed by the Inland Revenue.
Distribution of profits. Good record keeping will also help you in distributing the profit amongst partners or paying dividends to shareholders much better, as you would be keeping an eye on the events and the economic situation ahead. Efficient planning gives a boost to investor confidence, favouring a consistent growth in the wealth of shareholders in the form of dividend payouts or market value of the business.

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