Keeping accurate accounting records is crucially important for small business owners. Not only does doing so help you assess the financial performance and stability of your company, it is also a requirement of the law that companies of all sizes are able to account for all of the money that moves in and out of their accounts.
Accounting records can take the form of tax returns, invoices, statements, payments to employees, assets and liabilities. Essentially, your records, when viewed together, provide a summary of all of your business’ transactions.
We’ve written this blog post to explain why keeping records is so important.
Track Your Money
By keeping up-to-date records, you’ll be able to easily track the flow of cash and capital through your business and budget accordingly. You’ll be able to see where you’re spending too much and address the issue, so that you don’t end up being left with insufficient funds to cover major unforeseen expenses at the end of the financial year.
You can also ensure that your business is functioning as efficiently and profitably as possible. You can make sure that your financial performance is improving over time as your company expands its operations. In the event that profits decline, records allow you to assess how this change has affected your company’s stability and viability.
Just as records can be used to analyse past and present performance, they can also be used to look to the future. You can assess situations and periods which have caused headaches in the past and take action to rectify these issues as you move your company forward. Creating an accurate forecast can be the difference between an SME’s success and failure.
If you have plans for growth, you need excellent financial records. You’ll be able to create an effective business plan because you’ll know where your money is, where more money can be spent and where expenditure can be reduced. Securing financing for growth also relies on well kept accounts.
Keeping your balance sheets in order will ensure that you remain on the right side of the law. You will need as much information about your financial situation as possible to calculate how much tax you owe, for example. You may also be able to save money during tax season, as you will be in a position to more effectively support claims for tax relief and various capital allowances. The chance of making errors and being fined as a result is greatly reduced by having your accounts in order, allowing you to avoid over-payments and save money.
Note that you are required to hold most of your accounting records for a minimum of three years; VAT records must be stored for a minimum of six years.
If keeping accurate records seems like a daunting prospect, contact MCC Accountants in Irlam to find out how we can help you. We have years of experience helping small and medium businesses with their accounting and bookkeeping needs.