Keeping accurate and timely financial information will help you run a successful business. This is because a clear financial picture allows you to monitor the success or failure of your business. Even if you do not run a business, keeping track of your expenses can provide useful insights into your life.
For a start, file business documents, such as paid bills, bank statements and receipts in an orderly fashion in a safe place. You may use a file divided into different sections such as "car," "utilities," "entertainment" and so on,or several small containers for each group of expenses. Putting the receipts in the proper categories throughout the year makes it easier to total them up at tax time. You do not have to keep records in a formal "set of books;" however, you need to find a record keeping system that works for you.
Why keep records?
It will help you know how your business is doing. Is the business making money? Are you charging enough for your products and/or services? Are your expenses out of control? It is easy to think your business is doing well because there is cash in the bank, but that may not be the case.
Another reason to keep good records is that it helps you know if you are pricing your product or service accurately. Determining the correct price to charge may be one of the most important decisions you make in your business. Charge too much and you may lose business to your competitors, charge too little and you may price yourself right out of business. You need to make sure you price your product or service high enough to cover all of your costs, including costs that might not directly go into your product, such as loan costs, insurance, supplies, etc.
If you should apply for a business loan you will be asked to supply financial statements so the bank can determine whether you will be able to pay the loan back or not. Without such records your application will not be considered.
When preparing your tax returns it's vital that you have good business records. Poor records can result in missed tax deductions and therefore higher taxes. With good records, preparing your taxes will be faster and easier. Also, if you pay someone to complete your returns, poor records could result in higher fees because it will take the person longer to file your returns.
Keeping good records leaves you time to work on profitable activities such as getting the sale or delivering the service. You don't want to have to take time away from profitable activities to get your books in order. Nor do you want to miss out on business opportunities because you don't have financial records.
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