Why is record keeping important for small businesses?
While large enterprises can devote more resources and people to record keeping, the process can be a bit tricky for small businesses. However, record keeping is just as essential for small businesses as the large enterprises. It is important for running operations smoothly and offers several benefits. Small businesses stand to benefit in various operational areas from proper record keeping. There are several areas including revenue, taxes, expenses, employee information and accounts where businesses cannot manage without keeping proper records. While on the one hand proper record keeping can keep small business owners free from various types of headaches, it can also save them a lot of time and money as well as help measure progress towards their goals and objectives.
Some of the basic types of records that are essential for small businesses to keep include the following:
- Sales records
- Operating expenses
- Accounts receivable
- Accounts payable
- Customer list
- Employee list
- Vendor list
- Bank statements
- Tax documents
- Invoices
- Receipts
- Purchase orders
- Contracts
The above listed records are some of the most basic types of records that are essential for the small businesses to keep. Keeping these records offers several benefits and keeps you free from lots of worries.
What are the benefits of record keeping for small businesses?
It will help you understand how much you will need to invest to create or manufacture your product or service. Record keeping helps you track your investment and expenses, which proves helpful when you must set the prices of your products and services. Apart from that, if you keep proper records, it becomes easier to compare your budget with the amount you really spent. You can track your operating expenses and determine your actual income. Record keeping also keeps small business owners free from tax related worries and issues.
Another critical benefit that record keeping offers is that small business owners can make strategically important decisions about various purchases. Several times you may need to access customer or employee data urgently. However, if you do not store this data properly in the right place where it is accessible to you, difficulties can arise. So, it is important to have employee and customer data in proper place so one can access it whenever need arises. The same is the case with the list of vendors and if you need to contact one urgently, you can check out your records and find the required information faster. Even small businesses need to calculate their expected profit so that they can analyse if they achieved their target or not. Record keeping helps you with calculating your expected profits. In this way, you can see that., record keeping offers several advantages for small business owners.
Small business owners that want to start record keeping must first determine a system to track transactions and other details whose records they want to maintain. This is the digital era and even small owners have access to digital solutions that can make record keeping easier for them. While some still use paper or both digital and paper-based records, it depends on the convenience of the business owner. However, keeping digital records is much easier compared to keeping paper-based records. Apart from that, you have several low cost options to store your data in the clouds.
Which records are essential for small business owners to maintain?
Here are some of the most critical records that small business owners would like to maintain:
Sales records:
It basically tracks sales. However, sales record or sales log also includes the details of each sales including time, amount and type of sales for daily, weekly and monthly sales that your business achieved. For example, you would like to record how many pieces of each item you sold in a day. Apart from that, you will record the amount of sale or how much each sale was worth. For example, customer a bought products worth $100, B bought products or services worth $200 and so on. You can also record the sales of individual products so that you can anticipate demand for each product and accordingly manage the inventory. Many business owners also keep records of time of sales.
Accounts payable:
It basically includes the amount that your business owes to others. The accounts payable log will include how much you owe, when is the last date for payment and when you made the payment. It is critical to keep an accounts payable log. If a vendor mistakenly or otherwise charges you twice for the same product, you will know by checking the accounts payable log. If you have been receiving discounts for making early payments, then your accounts payable log will keep helping you in future to benefit from such discounts. Many small business keep accounts payable forms which include date, invoice number, vendor name, total amount and due dates for various payments.
Accounts receivable:
Accounts receivable is the opposite of accounts payable. It records the amount that the others owe you for the products you have sold or the services you delivered. It enlists the customers that owe you money, the amount they owe and the time when the payment is due. It helps you track which customers are making timely payments and which ones take longer than the due dates to pay the owed amount. Based on this information, which customers should be offered credit and which ones should not be. Small business owners should record the name of the customer, amount, date collected and status for each record.
Operating expenses:
It is important even for the small businesses to keep track of all the expenses they incur to avoid miscalculations and losses. Tracking the expenses helps you calculate your profits and accordingly plan your business. In the log for operating expenses, you will maintain the record for each type of expenses including the salaries you paid to your staff, the rent, electricity and other charges as well as supplies and raw materials. You must record the date and description of each type of expense and the amount you spent. It will also help you check if you have double counted a certain expense.
Contracts:
You must maintain a copy of every important contract in your records. Whether it is a new equipment or property you have leased or even a supply agreement with a new supplier or an insurance policy, maintaining a copy of each one for record is essential for small businesses. They will come in handy whenever you need them in future. For example, when you are going to renew a contract, you might need a copy of the original. If any type of disagreement arises then it can be resolved if you keep a copy of the contract. It can prevent any legal hassles for you as well.
Purchase orders:
A purchase order simply records the confirmation of a buyer for an order he has placed. It includes the confirmation of a buyer that he will pay for the sale of a specific product or service in the future.
List of customers:
For every business, it is important to keep the records of their customers and their purchases. It does not just help understand the buyer behavior, but also helps in terms of marketing and sales growth. Your customer records can include names, phone numbers, emails, addresses, items bought, and other similar items. You can use this information to promote new products or advertise new deals before your customers. Maintaining this list also helps you know who are your most regular and loyal customers and you offer special deals and discounts to them. However, when you record customer data, it is important to protect it so it does not fall in the wrong hands. You can safely store it online. However, you must keep more than one copy of the data so that if by chance you lose one, you will have access to another copy.
List of vendors:
Keeping a list of suppliers or vendors is also essential for businesses. Supplier management is important for small businesses too. It helps you track various things including financials, inventory and other things. However, in case you need to urgently contact a vendor or place a larger order for festive season, you can do it easily if you have all the important information accessible. Vendors can be like partners for businesses and it is why maintaining their records is important.
A few last words:
There are several challenges faced by small businesses which have comparatively less resources compared to the large enterprises. Record keeping can be a especially tricky thing for mall businesses. However, it is essential and saves lots of time and financial resources for small businesses,. In several cases, it can also help them against legal issues. First of all, record keeping is essential for small businesses so they can operate smoothly. They need to maintain records of how much they are spending and how much they are generating so they can accurately calculate their profits and measure their growth over time. Customers are central to doing business and maintaining their records helps with marketing and sales. Small businesses have several digital tools at their dispense now which can help them maintain these records with convenience and without the need to devote many people to record keeping. Even small businesses need to keep track of everything from supplies to expenses, employee salaries and other financial information that tracks their performance daily, weekly and monthly.