Financial Record Keeping Overview

Each year, thousands of small businesses fail because their owners have lost control of their finances. Many of these failures are brought on by the inability of the busi­ness owners to understand the complex accounting processes and systems that have become relatively standard in modern business. Accounting and bookkeeping have, in most businesses, been removed from the direct control and, therefore, understanding of the business owners themselves. If business owners cannot understand the financial situation of their own businesses, they have little chance of succeeding.
Keeping accurate and clear business financial records can, for many business owners, be the most difficult part of running a business. For most business owners, understanding those records is, at best, a struggle. And yet maintaining a set of clear and understandable financial records is perhaps the single most important factor that separates successful businesses from those that fail. The purpose of the next few chapters is to provide the small business owner with a clear understanding of how to develop a concise and easily-understood financial recordkeeping system, keep the books for a business, and, perhaps most importantly, actually understand those records.
Modern business practices have tended to complicate many areas of business when, in many cases, simplification is what most business owners need. In law, in management, and in accounting, many important business functions have been obscured from their owners by intricate systems and complex terminology. Business owners must then turn the handling of these affairs over to specialized professionals in a particular field. The result, in many cases, is that business owners lose crucial understanding of those por­tions of their business. With this loss of understanding comes the eventual and almost inevitable loss of control.

This is particularly true for small business owners and their financial records. It is ab­solutely vital that emerging small business owners intimately understand their financial position. Daily decisions must be made that can make or break a fledgling business. If the financial records of a small business are delegated to an outside accountant or bookkeeper, it is often difficult, if not impossible, for a novice business owner to un­derstand the current financial position of the business on a day-to-day basis. Critical business decisions are then made on the basis of incomplete or often unknown financial information.

The basic aspects of the accounting outlined in this book have been used successfully by millions of businesses in the past. The system presented in this book is designed to be set up and initially used by the business owners themselves. This will insure that the system is both thoroughly understood by the owner and provides the type of information that the owner actually wants. As a business grows and becomes more complex, and a business owner becomes more comfortable with financial recordkeeping, other more sophisticated and complex accounting systems may become appropriate. There are numerous computer-based accounting programs on the market, such as QuickBooks, that can provide the framework for a company accounting system. However, in order to understand and use any of the computer accounting systems, it is necessary to first have an understanding of the basics of financial recordkeeping.

© Nova Publishing Company, 2005