All types of businesses, without exception, need to keep accurate and readily accessible records of their financial transactions. Many organizations other than businesses also need to do it, and some individuals too. As a child, I had a neighbor who died at the age of 75 leaving records that accounted for every penny of his income and expenditure since his 21 st birthday.
Surprisingly he was a charming, generous man and in no way a miser. Perhaps you too have a personal bookkeeping system to record your financial affairs, though I would not recommend taking it to these extreme lengths. The benefits to a business of dependable financial records are probably self-evident.
They include:
- The law requires all companies and many other organizations to prepare accounts that conform to certain criteria. This can only be done if the basic, supporting financial records are in place.
- The tax authorities require it. If you do not believe me, try telling Her Majesty’s Revenue and Customs that you cannot do a VAT return because you have not kept proper records.
- It is necessary to manage the bank account, cash and borrowing. Otherwise, cheques might bounce or unproductive surpluses build up.
- Intelligently used, the records should warn of impending financial difficulties or even insolvency.
- Intelligently used, the records should provide the basis for efficiency savings and profitable business decisions.
- Without proper bookkeeping the owners would not know the worth of the business.
- It is, in many instances, essential to comply with money laundering regulations.