THE IMPORTANCE OF GOOD BUSINESS RECORDS

Good business records are a fundamental task for the effective organization of any business enterprise for intelligent business decision making. However, most business owners do not see the need to for updated record keeping in their business. They argue that they do not see the need for record keeping since it does not directly contribute to the success of their business. What an error! Those who have such argument always make reference to some successful business they know that does not keep up to date records but yet they are successful because they have a good product and an aggressive marketing team to convert every prospective customer into a buying and paying loyal customer.


If you are reasoning along this line you are half correct, but there is one thing I want you to know. The fact that those businesses are making good sales does not mean they are doing everything right. It does not also mean that their lack of good records will not plaque them in the future. A time will come when they will need information to evaluate their business and make intelligent management decision, then they will realize the importance of keeping good records. As a serious business man who does not appreciate the handicap occasioned by lack of adequate information, it is very wise to ensure you take seriously record keeping.


Do not be like most business owners who view bookkeeping as an exercise that they go through for the reason of tax return. Such mental attitude can course you a fortune. Therefore, to help you come up with the right mental attitude in regards to good record keeping, I am resolve in this article to help you understand the importance of good record keeping. When you are done reading this article, you will take more seriously good record keeping in your business organization. If you need more help in knowing how to design a good record system see my article titled “element of effective book keeping system” Good records keeping enable you:


· To be able to know if you are making or losing money in general and on specific jobs or product sales.


· To be able to price your product accurately. Good record keeping will prevent you from selling your products cheap. A lot of business are making a lot of sales but they are not making profit because they do not keep records to enable them evaluate their business in terms of sales and expenses.


· To know your cash flow both short and long term.


· To be able to work effectively and efficiently with bankers.


· To enable you make the tax agencies know how you are doing in business.




Let us at this moment examine each of the points highlighted above in a more detailed manner. You will come to realize that any business owner who does not take good record keeping seriously is really creating damage to himself, his business, and ultimately positioning both at a disadvantage position for productivity, impact, and exploit. Let get going! 

• Knowledge of profit and loss: It is very important for any business owner to know if his business is making or losing money. But how can he know? Can he just wake up one morning and make his business provide profit and loss information from nowhere? Of course not! That is my point! Well, even after you price your product, you have to know how your pricing compares with reality. If you are making some bad decisions with your pricing, and you wait until end of the year to find whether you have lost or made money, it may be too late to do anything about it.

Running a business profitably is not playing the game of childishness; it is tough. It can take a long time for some of your decisions to prove right or wrong, even with good record keeping let alone if you have none. Therefore, give your self a break, get your records organized and at least be paying attention to it on a daily and monthly basis so that you can see what is happening in time and effect the required changes. “A stitch in time saves nine”

• Effective and efficient product pricing: Product pricing is the first single most important thing you have to do in business. You have to charge more than it costs you to produce your products hence you will be trading at loss. To be able to price your product effectively and efficiently, you will need records that that inform you of the number of employee in your business, the amount of loan you are paying back to your lenders, your workers compensation bills, your electricity bills, your rent, product liability insurance, local council bills, advertising, etc.

There is a long list you are likely forgetting, or if not forgetting, mark downing beyond reality. If you do not have these records how can you price your product accurately and position your business for success? Pricing your products and or services without taking into consideration what it will cost you to produce and deliver those services and or products to your targeted market is a major step in the path of business failure.


Do not see this task organizing a good business records as a task you are in capable of doing. If you are determined to succeed in business you will definitely embrace it for with it you can get competitive advantage over your competitors. Nearly anyone can figure out the direct costs of their product or service - a good set of books will tell you just what ought to go into that equation for overhead, and that is the difference between profit and loss.


However, it important to note here that the need to take into consideration the cost your competitors are charging for offering same services and products should be taken into consideration. If your price is too high for the same services and products, you have given your market enough reason to make you fail. And also, try to add a touch of creativity that surpasses what your competitors are offering your market. You must give your market a reason to choose you over your competitors; you must make your self indispensable to your market.

• Knowledge of Cash Flow: Good business record keeping enables you to understand and manage cash flow. While trying to write this article, I came across valuable information about the mistakes of Paula and Shawn who never understood cash flow and as a result suffer greatly for this ignorance. I want you read it and learn from their mistakes. They did not know what cash flow was until it was almost too late.

They had an incredible summer starting their contracting business. There was always money in the bank, due to customer deposits which seemingly never ended. When fall came, however, business began to slow down and Paula and Shawn took a look, in a sort of vague, starry-eyed way, at "the books."They congratulated themselves on having beaten the odds of making a business very profitable in its first year. A week later, they revised the profit estimate down to account for a loan payment they had forgotten was still due. A month later, they had to revise it down again when the quarterly payroll taxes came due that included a contribution to worker's compensation. Then there was the $2,500 check Paula had added to the checkbook by mistake, because she hit the wrong button on the calculator. Shortly after they were on their knees at the local bank, pleading for a loan to rush them over the winter, promising they could pay it back in three months. They went through hell trying to pay off the loan, but thank God they were able to pay back. One of the most important things you will learn from keeping good records is how to understand and manage Cash Flow.

• Working effectively and efficiently with Bankers: You may not have thought it a wise motive to work with a banker since you started your small business. In fact you may be one of those who never want the bank to handle your money. Yes! You may also be among those who say they will never borrow money from the bank for their business. Yes! You are not the only one in these schools of thoughts. Paula and Shawn discussed above did not see the need to collaborate with a banker until they ran out of cash. They were very fortunate to find a banker who agreed to work with them, and help them learn about business while they were growing their business.

Good record keeping will enable you to get your numbers well organized before you ever approach a banker if you must stand a chance for financing. Organize your numbers on a cash flow spreadsheet before you approach a bank to ask for a business financing. If you are already working with a bank, make sure you do your best to impress them with good numbers. Give them good and accurate numbers.


For more information on getting the financing you need, click here or see my article on ‘Loan approval thought process’. With good record keeping you will see problems coming before they happen and talk to your banker about them in advance, and you will have a better chance of getting and keeping that person on your side.


Do your best to build quality relationship with your baker. It has tremendous advantage. Do not think that your relationship with your banker is adversarial by definition. It is not! Make the relationship one of teamwork and understanding. To look at your banker as an adversary from whom you should hide bad information is a huge mistake. I know most bakers do not want to be of help to those businesses that are struggling or that are just coming up. However, there are more of good bankers who are there to help you succeed in your business if they find you serious and sincere. Find a banker you can talk to and work with, and keep him/her posted, good or bad. Develop those relationships, and they will stick by you as long as they can. Looking for a bank that will help you to succeed in business? You will meet your best friend choosing Eagle Flight Micro finance Bank Ltd as your most trust worthy and dependable banker.

• Accurate tax returns: Good record keeping will help you to make accurate tax returns. Use the information contained in the record books you have prepared for your decision making. If your books are done and you know before the end of the year what taxes you have to pay, chances are you can save yourself money by paying ahead, or by buying tools that you know you will need. Many business owners lacking this information make a big mistake by over stocking with goods that are not required for immediate consumption. By doing this they tie up money they could have used to pay their tax returns. Though your tax accountant can help you do whatever planning you need to do in this regard, he cannot do that in the absence of good record.

The importance of good records cannot be over emphasized. If you must position your business for success, you must keep good records. Good record keeping enable you to know if you are making or losing money in general and on specific jobs or product sales. It also enables you to price your product accurately. It enables you to know your cash flow both short and long term. Record keeping enables you to work effectively and efficiently with your bankers. And finally it enables you to make adequate tax returns and make the tax agencies know how you are doing in business. These are benefits of good record keeping I am confident any serious minded business man or office holder cannot afford to ignore.

Related Articles:

1. Essential components of bookkeeping.

2. The importance of bookkeeping and record keeping in business enterprises 

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Wishing the best in business!