One thing that is common with most companies and businesses is accounting. It is essential for one to keep financial records to be able to know the financial status of the company. This helps the company to be able to meet financial obligations that have to be met and to know their profitability. This is the overall financial condition of the company. This also helps in making critical decisions on where the company is going. Below are some reasons why it is important to keep financial records.
Keeping financial records
Monitor the progress of your business
One reason to keep records of your company is that one is able to keep track of the progress of their business. With good records, one is able to know whether the business is improving or not. One can tell which items or service are selling and notice trends in their business that can help improve the sales of the company. With good records aside from determining how the business is going one can increase chances of success by employing better strategies. An example of monitoring progress is the 2011 arsenal analysis.
Help in preparation of financial statements
Good financial records will help one know how much money they are making. Whether the company is small or big good records will help one prepare accurate financial statements. This will be an income statement which will show the income and expenditure of the company for a particular period. Secondly, a balance sheet which has the assets, liabilities and equity in the company. This will also be shared with stakeholders of the company like investors and shareholders.
Know your sources of income
The financial records will help one know where and who their source of income is coming from. One is able to know what they need to be having, who has paid them and who they need to collect money from. It also helps one to know who their best clients are. These helps in the distribution of resources to strengthen the relationship between the client and company to market more effectively and treat them well. Likewise, it also helps to make decisions on clients who are not adding value to the company by either spending fewer resources or dropping them.
Know your expenses
Another reason for keeping financial records is that you are able to record what you are spending your money on. If one does not keep records the probability of forgetting is high. This will lead to a crisis especially when one is preparing to do tax returns.
Help prepare for tax returns
Meeting your obligations with the government maybe one of the most important reasons why one keeps financial records. It is essential that one has accurate records to be able to determine what they earned and how much to pay in taxes to the government.
To support items reported on companies tax return
Good financial records ultimately help one to support the tax returns they filed. The records offer proof of expenses incurred, income received and credits that you may have.