Business Management - Record Keeping

Business Management - Record Keeping

The keeping of adequate records cannot be stressed too much. Study after study shows that many failures can be attributed to inadequate records or the owner's failure to use what information was available to him. Without records, the businessperson cannot see in advance which way the business is going. Up-to-date records may forecast impending disaster, forewarning you to take steps to avoid it. While extra work is required to keep an adequate set of records, you will be more than repaid for the effort and expense. If you are not prepared to keep adequate records - or have someone keep them for you - you should not try to operate a small business. At a minimum, records are needed to substantiate: Your returns under tax laws, including income tax and social security laws; Your request for credit from equipment manufacturers or a loan from a bank; Your claims about the business, should you wish to sell it. But most important, you need them to run your business successfully and to increase your profits. With an adequate. yet simple, bookkeeping system you can answer such questions as: How much business am I doing? What are my expenses? Which appear to be too high? What is my gross profit margin? My net profit? How much am I collecting on my charge business? What is the condition of my working capital? How much cash do I have on hand? How much in the bank? How much do I owe my suppliers? What is my net worth? That is, what is the value of my ownership of the business? What are the trends in my receipts, expenses, profits, and net worth? Is my financial position improving or growing worse? How do my assets compare with what I owe? What is the percentage of return on my investment? How many cents out of each dollar of sales are net profit? Answer these and other questions by preparing and studying balance sheets and profit-and-loss statements. To do this, it is important that you record information about transactions as they occur. Keep this data in a detailed and orderly fashion and you will be able to answer the above questions. You will also have the answers to such other vital questions about your business as: What products or services do my customers like best? Next best? Not at all? Do I carry the merchandise most often requested? Am I qualified to render the services they demand most? How many of my charge customers are slow payers? Shall I switch to cash only, or use a credit card charge plan? The kind of records and how many you need depends on your particular operation. A boy selling newspapers part time each day does not need inventory records. He buys and sells his entire stock each day. But shoe store or dress shop operators will soon find they cannot keep necessary inventory information in their heads. Below is a list of records, grouped according to their use. No business will need them all. You may need only a few. As a matter of fact, you should not maintain a record without answering these three questions: (1) How will this record be used? (2) How important is the information likely to be? (3) Is the information available elsewhere in an equally accessible form? The following list may call your attention to records you can use to great advantage: Inventory and Purchasing Records provide facts to help with buying and selling Inventory Control Record Item Perpetual Inventory Record Model Stock Plan Out-of-Stock Sheet Open-To-Buy Record Purchase Order File Open To Purchase Order File Supplier File Returned Goods File Price Change Book Accounts Payable Ledger Sales Records to help determine sales trends Individual Sales Transactions Summary of Daily Sales Sales Plan Sales Promotion Plan Cash Records to show what is happening to cash. Daily Cash Reconciliation Cash Receipts Journal Cash Disbursements Journal Bank Reconciliation Credit Records show who owes you money and whether they are paying on time. Charge Account Application Accounts Receivable Ledger Accounts Receivable Aging List Employee Records show legally required information and information helpful in the efficient management of personnel. Employee Earnings and Amounts Withheld Employees' Expense Allowances Employment Applications Record of Changes in Rate of Pay Record of Reasons for Termination of Employment Employee Benefits Record Job Descriptions Crucial Incidents Record Fixtures and Property Records list facts needed for taking depreciation allowances and for insurance coverage and claims. Equipment Record Insurance Register Bookkeeping Records, in addition to some of the above, are needed if you use a double-entry bookkeeping system. General Journal General Ledger For efficient business operation, use information from records to keep inventory stock in line with sales, to watch trends, and for tax purposes. Use records to plan. A well thought-out business plan as a guide will strengthen your chances for success. A record showing the data for your business plan is the budget. Work up a budget to help you determine just how much increase in profit is reasonably within your reach. The budget will answer such questions as: What sales will be needed to achieve my desired profit? What fixed expenses will be necessary to support these sales? What variable expenses will be incurred? A budget enables you to set a goal and determine what to do in order to reach it. Compare your budget periodically with actual operations figures. With effective records you can do this. Then, where discrepancies show up you can take corrective action before it is too late. The right decisions for the right corrective action will depend upon your knowledge of management techniques in buying, pricing, selling, selecting and training personnel, and handling other management problems. You probably are thinking you can hire a bookkeeper or an accountant to handle the record keeping for you. Yes, you can. But remember two very important facts: Provide the accountant with accurate input. If you buy something and don't record the amount in your business checkbook, the accountant can't enter it. If you sell something for cash and don't record it, the accountant won't know about it. The records the accountant prepares will be no better than the information you provide. Use the records to make decisions. If you went to a physician and he told you you were ill and needed certain medicine to get well, you would follow his advice. If you pay an accountant and he tells you your sales are down this year, don't hide your head in the sand and pretend the problem will go away. It won't.