I once asked a business owner how much profit or loss he made in the previous year. The expression I saw on his face was typical of a mathematics class where a student is asked a question and the question becomes a serious source of confusion to the student.
His answer was expected – “honestly, I don’t know.” I asked him that question because over the years that I have known him, I have never seen him record any of his sales (I belief the same happens to the other transactions). If he does not record his sales, it will be a miracle if he is able to tell me how much profit(or loss) he made last year, or any other time for that matter.
I have also witnessed him taking delivery of stock items. Similarly, he does not use to do any recording. I call this “stone-age business practice.”
Refusal to keep record of financial transactions is common place especially among small and medium scale enterprises. Usually, their excuse has always been the same – lack of funds to employ an Accountant. This is partially true. In addition to limited funds, experience has shown that the unwillingness to separate the owner’s private purse from business’ purse makes the need for too much recording unattractive.
Another reason is the convenience that comes with not keeping proper records – just sell and dump the money some where; and simply spend without stressing your self to do any calculation or recording.
But these are surmountable. As for the problem of cash, the business owner can outsource the accounting work to an outsider, without necessarily having to employ a full timer. All that the Accountant would do is to prepare accounts that reflects the near-status and needs of the business/owner.
As for the second problem, I have always stressed the fact that a business whose purse is inter-locked with that of the owner would definitely experience retarded growth, conflict of interests/priorities, occasional financial challenges on both ends and even collapse in severe cases.
As for inconvenience, a simple book keeping (recording of financial transactions) practice is a good starter. More complex recordings can then be introduced over time.
As I moved around everyday, I see so many business that have either remained the same year in, year out, or are just struggling to stay afloat. Get close and you discover that their likely problem is mostly reckless and i-don’t-care financial management attitude !
But the fact is that good financial record keeping assist businesses to :
*determine profit or loss
*determine the profitability or otherwise of products traded upon
*monitor and control expenses
*monitor quantity of stock items
*determine total sales value
*determine the amount of debtors and creditors
*determine the total value of assets
*run costs-benefit analysis for proposed investments
*monitor your income and bank account(s)
*reconcile cash book balance with bank statement balance
*prove their seriousness to customers and other stakeholders.
*negotiating with workers on salary/wage increases….the benefits are endless.
What a business owner loses by not keeping proper financial records is simply the reverse of what you have read above.
No doubt, the consequences of not keeping proper records greatly outweigh the “benefits” of not keeping proper records.
So, my advice ? This is the 21st century. Move with global business trends. No matter how small your business might be.
Thanks for your time.