Your success in business will rest on good record keeping practices and solid cash flow.
Without good records it is simply impossible to determine the financial condition or profitability of your business. As a small business owner you should be familiar with, and recognise the importance of, proper record keeping requirements and cash-flow planning.
When setting up a company, regardless of the size, there are requirements under the Companies Act regarding the maintenance of books and records. As a business person it is important that you are aware of the legal requirements, and ensure that you are able to produce the required information.
Complete and accurate financial record keeping will be crucial to your business for the following reasons: -
- To provide financial data that help you operate more efficiently, thus increasing your profitability
- To identify all your business assets, liabilities, income and expenses. This information can then be used to compare with your sector’s averages, and highlight your strengths and weaknesses.
- Good records are essential for the preparation of your end of year returns and financial statements. These statements are critical for maintaining good relations with your bank.
What Good Records Tell You
The specific records your business will need depends on a number of factors, such as the type of enterprise, the company goals, and your management needs. Based on the relevant factors, your accountant can help you determine what records to keep and what information they should provide. Your accountant will also inform you if and when an annual audit is required.
Basic Record Keeping Systems
Your record keeping system, whether on paper or on a computer, should be simple to use, easy to understand, reliable, accurate, consistent, and designed to provide information on a timely basis. The following are a list of basic requirements for any accounting system: -
- Cheques Journal: Simply this is a list of all payments made from your bank account. This will be required for each bank account.
- Cash Receipts Book: This is a list of all cash received and an explanation of where the funds have come from, for example debtors, loan, etc. Again, this is required for each bank account.
- Sales Day Book: This is a list of all sales invoices. The Sales Day Book should split the sales between the VAT element and the different types of product that you sell. This analysis can be simple or more complex depending on the information you require about your different products or services.
- Purchases Day Book: This is a list for all purchases invoices. These again need to be analysed into the cost of sales expenses and administration expenses. In addition the VAT element must be shown separately.
- Debtors Records: These books will show at any time what you are owed from your customers.
- Creditors Records: These books will show what money is owed to your suppliers at any given time.
- Payroll: Records must also be kept regarding the salaries you are paying to your staff. Information must be maintained on how the tax is calculated and any additional refunds of expenses. Separate expenses claim forms must also be retained for these payments.
- Sales Invoices: A copy of all sales invoices must be maintained.
- Purchases Invoices: A copy of all invoices listed in your day books must be retained.
- Stock Record: The type of records retained here depends on your business. This may be an area that should be discussed with your accountant.
- Bank Statements: All bank statements from all your accounts should be maintained.
All the above records must be kept for seven years under Company law and be available for inspection by the revenue commissioners.
Computer or Manual Systems
The difference between keeping manual records and using accounting software is information management. Data should be entered into the accounts package only once; it should then emerge in the form of Profit and Loss Accounts, Balance Sheets, and VAT Returns etc.
Among the advantages of manual accounting is the independence from machines; the disadvantages include: reduced speed, increased effort of accountants, relatively slower internal control reporting, and the repetitive nature of the work.
The main advantages of computerised accounting include high speed and flexibility of reporting, reliability, no routine work, increased accuracy, internal control system of increased productivity, and easy back-up and restoration of records. The disadvantages include: relatively high costs of introducing and using the system, special training for personnel, increased personnel costs, and a dependence on machines.
To be competitive you will have to prepare for all future events and market changes. This preparation is carried out through cash flow planning. Failure to properly plan cash flow is one of the leading causes for small business failures. Cash flow analysis should show whether your daily operation generates enough cash to meet your obligations, and how your major outflows of cash to pay your obligations relate to major inflows of cash from sales.
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