Business

Keeping good financial records – key to small business sustainability

by Horace Gyles

Wednesday, January 24, 2018

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No matter how many days businesses choose to operate, all businesses need to utilise their days to ensure they stay solvent. This is especially true for small businesses across the Caribbean.

GETTING YOUR ACCOUNTS IN ORDER

The first and most important step for businesses is to make sure that their accounts are in order. It is essential for small businesses to keep proper accounting records that sufficiently explain all transactions. Accurate records provide information on how well the business is performing and provide the basis for the figures for tax returns. Keeping accurate records is a good idea and best practice, but it also gives you a measure of control over your own business. It can save you money in case fines are due for late payment or disputes.

THE IMPORTANCE OF TAX

Whether you are starting a small business or already running one, you will need at least a basic knowledge of taxation. If you are having difficulty with your tax return or tax issues, then a chartered certified accountant will be able to save you much more in tax than the cost of their fees. It is important that you make sure you get your tax payments in on time, and that you keep the required percentage aside to cover your business tax debt. A golden rule is to keep the tax authorities up to date with any issues you may have.

KNOW WHAT'S COMING

As long as small businesses use properly prepared budgets and forecasts, they should be able to anticipate most potential cash-flow problems in time to take action. If you have already set financial targets, it will be simple to contrast expectations with results. This will make it easier to analyse what has and hasn't worked. The results of this analysis can be an invaluable resource in future decision-making.

If you are having trouble making payments, let your creditors know. Explain why you are having difficulty and tell them when they can expect payment. Don't ignore debts as they will build up and damage relationships. On the other hand, a reputation as a prompt paying customer is invaluable. Some suppliers might even be willing to offer a discount in return for speedy payment.

KEEPING CONTROL

Maintaining control of credit is critical to smaller businesses, especially those that have limited cash resources. Unable to pay suppliers because of the money they are owed by customers, many profitable small businesses have been forced to cease trading. There are a number of things that can be done to avoid this happening to your business.

If the customer is likely to go out of business or tries to delay payment, serious consideration must be given as to whether they should be extended credit. If you are not sure, check references and credit ratings, as this will let customers know that you are serious about credit control.

It is also a good idea to judge customers on a case-by-case basis.

RECORDS AND REMINDERS

Records are the key to keeping accounts in order. Keeping clear, concise records in date order can make all the difference. If you know what is going on it is easier to work out whom you need to chase and when.

If the payment date has passed without payment made, there will be a reason. Whether it is something as simple as a missing invoice or as complex as an insolvent business avoiding payment, you need to chase up. If your customers think they can get away with paying late, they often will, so you need to make it clear that they won't. You can do this by sending a reminder or, ideally, by calling them to confirm that the payment will be on time.

There is always a chance that your client is having difficulties making their payments and are only paying those who chase, in which case only those who do follow up will receive their money.

In the situation of the customer making payment on account, immediately put a hold on their credit until the debt is paid in full. Depending on the circumstances, you may need to negotiate a payment scheme.

It is possible that you, as the supplier, are the cause of the late payment. Make sure you have been added to their payment records and try to understand the customer's payment system. Larger businesses, in particular, can have complex systems of payment, so do not risk losing out by not checking with them.

SYSTEMISING YOUR BUSINESS

Effective systems can save you and your team both time and money and frustration. Too many small businesses do not implement effective accounting systems and this leads to losses as well as higher taxation due to loss of records. Good systems allow the business to function properly regardless of who is employed. Creating an effective system simply means to write down what exactly is being done. It is important to create a good accounting system so that records can be properly located, reports can be accurate and be generated on time and the business can be measured accurately.

BUSINESS SUPPORT

Whether you need a grant to help your business develop or just want some advice, there's a variety of support available to all small businesses. If you are unsure what help is available or what you qualify for, you can find details and advice on websites. For professional advice, seek the help of a chartered certified accountant. Accountants are the backbone of business and crucial to steering businesses through difficulties. Through managing finances and promoting good financial management, they enable businesses to successfully navigate through whatever they may face ahead and take advantage of challenging circumstances.

Horace Gyles FCCA is a founding partner of HBG Associates Chartered Accounts.

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