Many small business owners don’t maintain proper records in their businesses. I recall someone who reached out to me and needed some guidance on how to improve their business. He said he had been in business for a while but was not sure if he was making any profits. So I asked him to send me his schedule of sales and expenses before I could advise him. He told me he didn’t have any records to speak of. I gladly told him I couldn’t help him.
This informality in the way we do business is partly the reason many small businesses fail. Some believe that if they don’t keep proper records then the tax man will not disturb them. However proper records management is essential for business success and growth. All the big companies we admire have invested millions in proper data and records management systems. Some people have even proclaimed that data is the new gold.
With the right records, information and data you can make better decisions. Effective decision making should be made on documented information and proper analysis. Proper record keeping takes the guess work out of decision making. Proper documented information is also a requirement of the international standard on Quality Management Systems (ISO 9001:2015).
Having proper records is actually a legal requirement for business owners. The tax man and other government bodies will inspect these records at some time and heavy penalties including shutting down the business can be imposed.
The following records should be maintained by anyone running a small business:
- Customer records including names, contact info, location, profession, age, gender, nationality, email and telephone records, etc.
- Sales records; invoices, receipts, sales statements, market intelligence, receivables, price lists, etc.
- Expense records; vouchers, receipts, cash books, etc.
- Human resources; employee contracts, performance contracts, appraisal forms, national ID, CVs, payroll, etc.
- Taxes e.g. VAT claims, PAYE returns, NSSF records, trading licences, etc.
- Legal information; contracts, certificate of incorporation, shareholder agreements, trademarks, board minutes, etc.
- Operational records like attendance records, quality records, inspection records, management minutes, etc.
- Financial reports; income statements, cash flow projections, balance sheet, bank reconciliations, sales reconciliations, bank statements, assets register, inventory records, supplier information, etc.
- Performance reports e.g. monthly performance reports both financial and operational aspects.
- Strategic documents e.g. business plans, investment appraisals, strategic plans, annual reports, etc.
Ideally you want to maintain a separate file for each of these set of records. One file should be a physical file and the other should be an electronic backup. The role of records management should be assigned to someone specific in the business. For instance in our manufacturing business this role has been assigned to the Administrator/Accountant. She has to submit a monthly report on performance to the CEO. We have set up a comprehensive records management system based on Google Sheets and Google Drive. This is a free online platform where people can collaborate on the same document remotely. So we are able to monitor the performance of the organization in real time.
Make sure you separate your personal finances from the business finances. A separate bank account should be maintained for the business. Limit shareholder withdrawals from the business. This gives time and space for the business to grow without being encumbered by your personal demands.
Simply put, proper records management is good business practice. You can’t claim to be a good entrepreneur if you don’t even know your costs and sales, or which customers you serve.