Without good records it is simply impossible to determine the financial condition or profitability of your business. As a small business owner you should be familiar with, and recognise the importance of, proper record keeping requirements and cash-flow planning.
When setting up a company, regardless of the size, there are requirements under the Companies Act regarding the maintenance of books and records. As a business person it is important that you are aware of the legal requirements, and ensure that you are able to produce the required information.
Complete and accurate financial record keeping will be crucial to your business for the following reasons: -
What Good Records Tell You
The specific records your business will need depends on a number of factors, such as the type of enterprise, the company goals, and your management needs. Based on the relevant factors, your accountant can help you determine what records to keep and what information they should provide. Your accountant will also inform you if and when an annual audit is required.
Basic Record Keeping Systems
Your record keeping system, whether on paper or on a computer, should be simple to use, easy to understand, reliable, accurate, consistent, and designed to provide information on a timely basis. The following are a list of basic requirements for any accounting system: -
All the above records must be kept for seven years under Company law and be available for inspection by the revenue commissioners.
Computer or Manual Systems
The difference between keeping manual records and using accounting software is information management. Data should be entered into the accounts package only once; it should then emerge in the form of Profit and Loss Accounts, Balance Sheets, and VAT Returns etc.
Among the advantages of manual accounting is the independence from machines; the disadvantages include: reduced speed, increased effort of accountants, relatively slower internal control reporting, and the repetitive nature of the work.
The main advantages of computerised accounting include high speed and flexibility of reporting, reliability, no routine work, increased accuracy, internal control system of increased productivity, and easy back-up and restoration of records. The disadvantages include: relatively high costs of introducing and using the system, special training for personnel, increased personnel costs, and a dependence on machines.
To be competitive you will have to prepare for all future events and market changes. This preparation is carried out through cash flow planning. Failure to properly plan cash flow is one of the leading causes for small buisness failures. Cash flow analysis should show whether your daily operation generates enough cash to meet your obligations, and how your major outflows of cash to pay your obligations relate to major inflows of cash from sales.