Welcome to another week of financial learning. For the last two weeks, I have been discussing how entrepreneurs can sustain and improve their business.
We learned how capital could be raised i.e savings, partnership and support from financial institutions. I also addressed the benefits and processes of networking.
Today I want us to look at how we can attain financial discipline through good record keeping. For the benefit of my new readers, I would like to explain financial discipline again.
Financial discipline is the ability to spend and save within one’s income.
Financial discipline is also how well we can conform our spending and savings to the plans that we have set to achieve our monetary goals.
From the second explanation of financial discipline, we notice three keywords; Conforming, Plans and Monetary goals.
Financial discipline needs your physical and mental state of mind to conform to the plans you set for any amount of income you earn.
With the above said, financial discipline can be achieved through having a personal budget, limiting money excuses, proper record keeping among others.
The focus for today as already hinted will be centered on how individuals and businesses can make financial strides with record keeping.
Record keeping is having files for every income you make and how you spent it. Everyone in business must keep records. Everyone working must keep records.
To know where your money goes, you need to keep some written records.
The trick is in deciding what you need to know and keeping track of only that information.
The mere fact that you spend on items that you can not remember how much you spent on them in the subsequent month is a recipe for financial mismanagement.
Your record-keeping system, whether on paper or a computer, should be simple to use, easy to understand, reliable, accurate, consistent and designed to provide information on a timely basis.
The difference between keeping manual records and using computer software is usually information management.
The best information bank for record-keeping are;
- Cheque book leaflets
- Bank statements
- A sales invoice, creditors and debtors records etc for businesses
So, the question now is, why do we need to keep good records especially expenses?
Keeping good expenses records offers the following benefits;
Monitor your financial goal progress:
Constant monitoring of how you use your monies helps in spotting wastages. Good records will provide us with the opportunity to do effective monitoring.
Assuming you send GHS 500 to the market and come home with GHS 10.
You should be able to enlist everything you bought on your way and on the market.
At the end of the month, you will analyze everything that you bought in the month against the financial target you set for yourself that month.
The result will be to bring improvement in the subsequent month. This helps you in the sense that, it guides you with the items that you need in the ensuing month i.e cutting out duplicates.
If you don’t have good records, it’s much harder to make good decisions.
Helps to stay organized
Having easily accessible records on expenses helps you in making quick decisions.
It enhances your ability to stay organized with information as against arbitrary spending and guesswork.
Makes it easy to prepare management account for businesses
As an entrepreneur, the only information you need from the beginning of the year until the end of the year is whether you are making or losing money?
Management accounts will help you to constantly know your business state.
The source of the information for management accounts lies in the available business records.
It is therefore very crucial that you track everything that happens in the course of business.
Makes it easier to get a bank loan or overdraft
In my article on raising capital as an entrepreneur, I quoted financial institutions as partners in the expansion of businesses.
The major limitation that goes against most businesses in the accessibility of loans from a financial institution has to do with a lack of proper business records.
Banks deal in documents i.e cash flow, collateral, and bank statements.
Do not wait until you need a loan before you start preparing business records.
Start keeping good sales and purchase records, cash receipt records, debtors and credit records, etc. Strive to make that a part of your business activities.
It makes your business attractive for financial support because it depicts your organizational skills.
With the above benefits said, I want to explain some basic ways of keeping a good record.
- Establish business and personal bank accounts
A business must be distinguishable from the owners, and the simplest way to accomplish this is to establish bank accounts specifically for the business.
This separates business activities and expenses from personal ones.
A business bank account allows you to easily track business income and expenses.
Mixing business funds with personal funds can lead to a complicated mess.
The habit of keeping monies at home must stop!
Try as much as possible to channel every money you receive through the bank even if you want to withdraw it immediately.
This is a tried and tested record-keeping approach.
- Avoid the use of cash
As much as practicable, always make purchases with a cheque for your businesses and debit cards for personal use.
Spending cash with no proper documentation makes it especially difficult for us to keep and maintain proper business financial records.
It is easy to forget how and where cash was spent without the proper documentation.
All spending with a debit card can be tracked in future hence, a better alternative to holding physical cash.
Mobile money now offers a competing alternative to keeping the cash.
If you need to use cash, pull money out of the ATM or with your checkbook and make a note on the receipt as to the purpose of the withdrawal.
- Schedule a Specific Time Each Week/Month
If you are going to be keeping and maintaining your business and personal records, be sure to schedule a specific time each week or month you can devote to keeping your records.
Take some time each week or month to review your income and expenses, and manage your accounts receivable and payable.
It should be a continuous activity. You can set an alarm to prompt you on the specific days selected.
- Employ an Experienced Bookkeeper/Accountant
As your business begins to grow, you might want to think about investing in an experienced, and trained bookkeeper.
There are a few benefits to hiring a bookkeeper to assist with your record keeping.
Having a competent bookkeeper takes away the burden of having to worry about keeping your business records.
This will offer you enough time to focus on growing your business while knowing that your records will remain up to date.
In concluding, therefore, I will say that If you want to take control of your financial life, then you need to learn how to properly organize and keep your financial records and personal documents.
This is non-negotiable and must be adhered to.
I wish everyone a wonderful and memorable week!