In boom times it’s very easy for business owners to ignore the quality of their financial reporting system and turn a blind eye to financial management issues. Unfortunately when these bad habits spill over in to difficult economic times it can have catastrophic consequences.
The most basic requirement for a successful small business is good accounting records. Up to date, accurate financial records lets you make informed business decisions. They provide vital management information needed to grow your business and monitor key performance indicators.
Despite the introduction of GST some years ago, the majority of small business owners are still using accounting software beyond their business needs and level of accounting skill. The net result is they generally produce ‘computerised shoebox’ records that should not be relied upon when making financial or strategic business decisions.
If you don’t understand double entry accounting principles including debits and credits, it is time to review your accounting software. As a rule of thumb, you should have financials available within 7 days of the end of each month. This is supported by an Australian survey that suggests that a business’ very survival depends largely on timely and accurate records.
You will also need good accounting records to demonstrate your financial position to banks, other lenders and prospective buyers at some time in the future. These parties will want to track your historical performance and will demand current data. The Tax Office also requires you to keep and maintain business records including source documents for at least 5 years.
Well managed businesses produce a ‘weekly snapshot report’ of:
- Debtors & Creditors
- Cash at Bank and On Hand
- Sales Pipeline
- Work In Progress
- Other KPI’s