The Importance of Proper Business Accounting

Keeping financial accounts is the only way in which you can track the flow of funds into and out from your business. This is the most important element for all businesses. If you have lost control of your cash then you have probably lost control of your business. There is an old adage associated with financial accounts - 'cash is king' - ignore this at your peril.

Most businesses maintain some sort of accounting record, at the very least using a basic cash accounting system. Monitoring cash is very important to the day-to-day control of your business but it will not reveal any profits or losses that you are making.

Come the time for your annual accounts to be prepared, it will be too late to take any action. The trading performance is historic, the losses have been made and you cannot do a thing about it. The losses will have soaked up cash resources and, unless you have an extremely good action plan to improve your performance, you are unlikely to be able to gain outside funding.

This is a scenario that is repeated time and time again in all types of businesses. It is not only small firms that fail due to a lack of cash. Even large publicly quoted companies have failed for the same reason. If only business owners had taken the initiative and prepared even the most basic of accounts they could have recognised a potential problem before it occurred.

Keeping Control of Your Business

Unfortunately many business owners go out of their way to avoid the preparation of financial accounts. It is difficult to establish the reasons for this, but the common theme seems to be that they are considered to be irrelevant to maintaining control. This is a grave and fundamental mistake. Control over your finances is a primary business function that you cannot afford to ignore. As part of that control, the accounts that you prepare will be a key indicator as to how your business is performing.

The accounts that you compile do not have to meet the exacting standards of the accountancy profession. They need only be used as a tool as part of your overall management control system. There is absolutely no reason why you cannot compile basic accounts for your own business.

Statutory Obligations

The keeping of adequate accounting records is usually necessary to comply with legislation. Each year many people fall foul of the Inland Revenue and HM Customs and Excise for failing to keep the proper records. Although, with the exception of a limited company, there is no legislation to force you to keep accounts, you could be in trouble if your business fails and you are declared bankrupt. This applies to any and every business.