5 reasons for proper account keeping
Book keeping might easily be the least sexy part of being an entrepreneur. But if you keep at it and maintain updated and proper books, the rewards far outweigh the trouble of crunching numbers. Here are the five top reasons to help you rethink procrastinating on account keeping.
With years of experience working with entrepreneurs, closely reviewing their finances and accounting systems, we have come-up with five rationales for keeping proper books of accounts. These reasons are applicable for a wide variety of entrepreneurial firms, regardless of their size and nature of business.
1 Current Status of the company: The foremost reason for keeping proper books of accounts is to assess the current situation of your company. Books of Accounts provide an accurate picture of the company’s financial health at any point in time, and results of operations for a particular period of time. Information like Investment details, Cost of Operations, Revenue, Break Even level, Cash Flow and Funds Flow’s status are crucial for understanding your business’ position and performance and can be obtained from appropriate accounting systems only.
2 Internal Control System: A good accounting system is crucial for developing a robust internal control system. Proper account keeping will help in reducing potential revenue leakage, misuse of resources and any other type of loss. It also acts as a tracking system for all your transactions, enabling you to keep your business transparent.
3 Management Information System: Your books of accounts contain various explicit and/or hidden data and information that is necessary to make key managerial decisions. Such information is the feedback on the company’s current performance and plays a crucial role in preparing future strategies and plans. All these future projections and plans should be based on the figures provided by your current books.
4 Compliance: Government authorities and regulators demand a company to submit reports generated from their books of accounts at regular intervals. These authorities prescribe you various norms and standards to maintain your books and it is your company’s responsibility to comply with such norms. Inland Revenue Department (or simply the tax office) requires you to pay taxes as shown by your books too.
5 Additional Fund Raising (Investors/Lenders): Most companies require additional funds when planning business expansions. However, those funds don’t c ome easy and no investor is interested to invest in a venture without a proper accounting system. Investors or lenders who are interested in you will like to see the value of your company and be ensured that their funds are not misused. Such a valuation of the company invariably depends upon the financial position as depicted in your books of accounts.