Keeping proper financial records is one of the major activities that can help you to succeed in your business. This enables you to track your expenses and sales hence help you optimize your operations and cut unnecessary costs.
The number of newly registered businesses in Kenya has been on the rise for the last five years. This rise can be attributed to the simplification of business registration processes among other incentives by the government. However, ease of registering a business does not guarantee its success.
According to a report that was released mid-2018 by Central Bank of Kenya Governor Patrick Njoroge, 46% of Small Medium Enterprises close within the first year of formation. He further stated that an additional 15% run out of business in the following year.
There are many factors that contribute to the failure of startups. Key among them is the failure to keep proper financial records. Most startups cannot afford to hire in-house accountants or even outsource accounting services. This, however, should not spell doom for new business.
Maintaining accurate financial records is a vital part of ensuring the success of any business. A fact that most budding entrepreneurs seem to be unaware of. There are simple methods founders can use to keep such records without soliciting the services of a financial advisor.
Here are some of the benefits you will enjoy for keeping your books in order.
Proper financial records enables you to monitor your costs and revenue
A business without up to date financial records is like a plane without navigation systems. Even with the best pilot, it is bound to get lost in the vast airspace. Records are your compass. They tell you where your business is going and whether or not you should change course or keep going in the same direction. Good records give you the following information.
- The number of sales you make per day, week, month and even annually. This data can help you make accurate revenue projections for the future. It will also help you know what your gross and net profits are.
- Accurate insight into the products, services or departments that are performing well and those that are draining your capital. With this information, you will be able to know which products or services your company should invest in more to increase sales.
- Comparison with previous records and projections will help you know how fast the company is growing and if it is on track to meet its targets.
Access to Finance
During the life cycle of your business, it may need additional investment in order to adequately satisfy the market or even catch up with competitors. Securing such resources may sometimes require you to seek funding from outside sources such as financial institutions or angel investors.
Before investing or giving your business a loan they have to do their due diligence. This process involves assessing your value proposition, business model and financial records. They need to see that your company is a worthwhile investment. Therefore, proper financial records will be very important for this. Investors will be able to see where the business has come from, where it is and gauge how far it could go.
Enhanced Efficiency and Business Management
Proper record keeping allows business operations to run smoothly. It will be easier to track inventory, client orders and thus facilitate timely decision making as retrieving the necessary information will be easy.
Most businesses do not fail because the idea is not viable, but because the execution is wrong. As an entrepreneur, you are the biggest factor that plays into the success of your company. Ensure that you keep proper financial records that include all the sales, expenses and inventory. Even without the in house expertise or ability to hire an third party service provider, there are some accounting software programs that can help you to do most of the basic book keeping.