Any small business person who has to face the responsibility of ‘keeping the books’ realises that it is a much underestimated job.
Perhaps a person runs an electrical business, and there is no one better at diagnosing what is wrong with a vacuum cleaner. But can he make the transition from driving belts to behind a desk to make sure that he gets paid for the job?
Or, could it be that a person runs a steak house? Is he paying too much for his fillets, and is he making sure that he is accounting for enough tax claims? The problem, of course, is self-evident to the accountant. It is the almost classic dilemma for people who run small businesses – wide expertise in their particular fields, but little or no experience in business accounting procedures; that is the basic record keeping which is necessary to keep any business alive, regardless of the quality of the product or service.
For the small business client paperwork, it seems, is far more than just a nagging headache. Successfully juggling the rigours of necessary paperwork (from knowing how much is in the petty cash, to keeping personnel records), can mean the difference between high and moderate success or, at worst, a total failure. Keeping proper tabs on receipts, expenditures and cash flow can mean important savings, even solvency; but such records are no easy task for every small business person, who does not know one tax form from another. A few simple suggestions may help you.
Keep it simple
Suggestion one that we can make is: keep record keeping simple, and retain it, in large measure, in a cheque-book. The problem is that many people starting new businesses make record keeping the last consideration of their enterprise. Following from this, they tend to complicate record keeping procedures unnecessarily.
It should also be pointed out that, as people running small businesses tend to over-complicate their financial record keeping, a chequebook system makes it easier for payments records from capital expenditure to wages.
The chequebook system eliminates extensive cross-referencing and complex tallies in over-indexed journals. If a small business is keeping a sales record, an invoice register, a general cash journal and a wages book, it is probably sufficient.
An accounts receivable ledger and a wages book which summarises monthly, quarterly and annual gross wages as well as deductions for tax and PRSI are probably ample. A person who runs a small business should know how well he or she is doing by the chequebook. The business rises or falls on the basis of the chequebook.
Chequebook is foundation
The chequebook system remains the foundation of a simple system even though the client uses a cash receipt book, a cash payment book and a petty cash float. All monies which pass through the business should go through a bank account. When used with other records, the chequebook helps to show how much was taxable income, what amounts have tax relief, and what should be changed.
Basically a good accounts record system for the small business proprietor should fulfill six precepts:
- simple to use.
- easy to understand.
- reliable.
- accurate.
- consistent.
- designed to provide information on a timely basis.
Financial record keeping for business is an evolving process, which should start basic. Once a company grows, the record keeping process progresses to a more complex system in keeping up with the company’s new size. What many people think, unwisely in our opinion, is that the sophisticated must be implemented from day one.
Record keeping, of course, is grounded in common sense. Company – related correspondence must be filed and saved, as well as personnel records. Records are best kept for seven years, and fixed assets records should be saved indefinitely.
The important thing to remember with small businesses is that streamlining the accounts and records systems, is the essence of a successful, effective record keeping plan.
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Please call Seamus Parfrey today on 083 015 3313 if you need further information on basic books and records or a consultation.