The running of any business involves numerous transactions and deals to be carried out on a daily basis, regardless of whether it’s a small retail store run by an individual or a multinational run by a board of directors. Certain transactions are as simple as a give and take, while the ones dealing with credit payments are often complicated.
No matter what the nature of a transaction is, it is practically impossible for a business owner to keep track of every single one of them. This is where the question of maintaining business records enters the fray.
It is not mentioned anywhere that it is mandatory for a businessman to keep records, but there is no better way to run a business smoothly. Maintaining business records is always more convenient than not maintaining anyat all. There are several benefits of keeping records for your business, some of which are discussed here:
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Monitor If Your Business Is Progressing
One of the most fundamental goals of running a business is to make sure that it progresses. Your business records will help you track the growth of your venture accurately.
Here, you get a record of all the items you are selling, the amount you are gaining as profit and many more important statistics. These figures would give you a fair idea as to what changes you need to make in your business in order to make it more progressive.
Aid For Preparing Financial Statements
You can’t prepare your financial statements unless you have systematic business records. If you are making an income statement, you need all your sales-related records.
To put together a balance sheet, you need all the records pertaining to your assets and liabilities. Without a set record of your transactions and your business inventory, you won’t be able to make your final financial statements, which is an issue as they are crucial for your enterprise.
Ascertaining Your Sources Of Income
As a business organisation, you may receive money from several sources. You may also receive various non-business receipts which hold little value in your daily operations.
If you maintain regular business records, it will help you in separating business receipts from non-business receipts and would give you a permanent record of all the income sources.
Keeping A Track Of Your Property
Maintaining records would help you in having a clear idea about your business and where it’s at financially.
Simply put, basis is the amount of investment you make in your property for tax purposes. You can use your basis for calculating your profit or loss on the sale of your properties.
You can also have a record of all the barter deals and exchanges made by your business which is not on a cash basis.
Also, if you have acquired an asset using asset finance, your records would also help you to look into the nature of borrowing and the method of repayment in the future.
Keep your records neat and readily available. If you’re maintaining digital records, always make sure that all the directors have a decent backup in case there are any problems and that the data is well-secured.
All these little precautions may seem unnecessary, but it’s always good to secure your business than trying to bring it out of a crisis in the future.
Prepare For Your Tax Returns
Maintaining business records help you prepare well for your tax returns. The information that is stored in your business records can be used to figure the profits and loss on the sales, exchange and other disposition of the property.
Equally, it also gives you a clear idea about the deductions for depreciation, amortisation, depletion and casualty losses.
Support items Reported on your Tax Returns
It is necessary that business owners keep their business records available at all times for inspections conducted by the HMRC. If the HMRC decides to examine your tax returns they might possibly ask you questions and seek explanations regarding certain items recorded in your file.
Having a complete, regularly updated business record helps in speeding up this process.
Although maintaining business records can be a challenging task, they can be maintained either manually, computerised spreadsheet or kept online. No matter what way you choose to maintain your business records, ensure that the system you use is easier to operate and understandable by you and your employees.
Additionally, companies can keep records of the receipts, bank statements and invoices as well.
Don’t attempt to organise all your company records at once if you’re previously not kept on top of it all. Break the tasks into series of straightforward and manageable tasks. Later, you can access and keep updating them on a regular basis rather than having the paperwork piled up.