Importance of Keeping Proper Financial Records

Importance of Keeping Proper Financial Records

September 14, 2020

For entrepreneurs, corporate and business organizations, financial record keeping has always been an integral part of their entire business activities. In fact, it is a critical component of both business growth and sustainability. 

Since records and documents are the backbone of any business, it is necessary to store, preserve and manage those records so they can be accessed later to drive future business growth. Regardless of the sector of business you work in, financial record keeping is extremely essential to maintain and regularize any kind of business looking to eventually scale.

Highlighted below are some important reasons why you should keep a proper financial record.

1. Allows you to manage your business and its growth

Physical records like statements, audit books, sales and purchase reports can let you know whether your business is developing positively or not. It offers a window of proper verification which allows you to locate the loopholes and permits you to develop market-orientated business policies. In summary, financial record keeping will help you track your business success.

2. Makes it easy to prepare accurate financial statements and reports

Proper financial records ensure the complete availability of diverse commercial documents such as profit and loss statements, balance sheets, etc. These records are helpful to prepare accurate financial statements.

3. Allows quick accessibility to important information and documents 

Sometimes we tend to forget things and because this happens, bad people might want to take advantage of this. For example, let’s say a customer approaches you to buy some goods on credit and promises to pay the debt in 2 weeks. Before the supposed payback date, he or she has come several times to buy goods and actually pay yet on payback day, this customer claims his previous debt has been settled. The easiest way to exonerate oneself from a situation like this is to refer back to your financial records and verify the customer’s statement against the data available to avoid embarrassment for the business and oneself.

4. Allows easy access to loans and grants

Businesses might need to take loans or even seek grants not just to expand their business but to sometimes save the business from liquidation. To access these loans or grants, you need to mostly provide financial records to show your business growth, strengths, forecast, etc. before the banks or institutions will approve your loan request. If your business doesn’t keep these records, it will put the business in an unfavorable situation.

5. Helps in filing of proper documentation for tax and levies

Businesses are required to pay tax as taxes are an essential part of an economy as it supports government expenditure. To know the appropriate amount your business has to pay in tax, you must have proper financial records to show your income, spend, etc. These documents will help in allowing the business not be overcharged or undercharged by the appropriate tax authority.

In summary, record keeping is important in businesses, be it records operational and administrative activities or financial activities. They serve as the memory of businesses and cannot be discounted by any small, medium or large enterprise looking to grow into a credible institution. 

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