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Maintain financial records if you run a business – of any size. Here are seven critical reasons, from knowing your profitable products to raising money.
You’ve got this inspiring idea to start a business that you know will add value to others. So you pour your heart and soul into getting things off the ground. But then reality hits.
You get to do what you enjoy but that’s not enough. Running a business also includes the boring and time-consuming task of maintaining records.
A lot of business owners assume that if they have enough money in the bank, their businesses are doing well. That they don’t need to bother with the hassle of recording details of their day-to-day transactions.
While a healthy bank balance is most definitely a plus, it does not give you a holistic view of your business. Below are 7 reasons why every business should maintain financial records well.
You can track your income and expenses over time and see if they are moving in a favourable direction. Record keeping enables you to set goals and measure the performance of your business against them.
You can take corrective action immediately and take advantage of business opportunities.
Profit is the difference between the revenue you earn and the expenses incurred to earn that revenue.
Understanding your gross and net profit margins is key. You can figure out how to improve these margins either by increasing revenue, decreasing costs, or both.
If you maintain financial records properly, you will be able to make well-informed and timely decisions; like determining credit limits for your customers based on their payment history, or whether upgrading an asset for your business is feasible based on the cash flow generated from your operations.
How can you control your expenditure if you don’t know how much your overheads add up to? Start by identifying and differentiating between different types of expense heads. You can analyze them and find ways to be more cost-effective.
You will be able to learn which products/services generated the most revenue and those that fetched better margins. It will allow you to find out who your most loyal customers are and enable you to serve them better.
Having timely and accurate financial statements will help you demonstrate the reliability and credibility of your business to potential investors and lenders. It will make obtaining additional funds for your business to grow a whole lot easier.
Even if you don’t maintain proper books of accounts for any of the above reasons, it might be a mandatory requirement as per the statutory and tax authorities of your country. You will be able to calculate your tax dues correctly and ensure that you don’t have to face any penalties in the future.
As monotonous as it might seem, maintaining your books of accounts is an essential part of your business. You can do a lot of the basic work on your own, or you could choose to hire a part-time accountant or outsource your work to a bookkeeping firm.
Either way, don’t miss out on this important element as you build that incredible business of yours.
Photo by Ketut Subiyanto from Pexels
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I'm a freelance accounting consultant. When I'm not number crunching, I enjoy reading
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