A CASE FOR FINANCIAL RECORDS 2

The Balance Sheet – This is a definitive report that gives a picture of a company’s business and financial position at a point in time.
The simple logic of business is this – If for any reason a company needs to settle all its liabilities e.g creditors, taxes, investors (e.t.c) at a point in time; the total of its asset (debtors, stock, property e.t.c.) must be adequate for this purpose. That is a company should not have more liabilities than it can settle with its assets. A company that violates this principle headed for trouble. The Balance Sheet is all encompassing. An accountant can get so much information from this report alone. It is usually key in analyzing a company’s performance or for comparing 2 similar operations.

The Balance Sheet is the most important report of all because all activities that affect the financial position of the company (up to that point) will find its way into the balance sheet. The other reports support the Balance Sheet by describing what the company has done over time to get to this position. The Profit & Loss gives details of activities that affect profit while the Cash Flow gives details of transactions that affect the cash position. However, any activity would ultimately affect either the asset or liability positions. The Balance Sheet, simply lists all the assets and liabilities side by side.

The essence of all of these is that it is important for a business to keep accurate records of its transactions. You may need the services of a professional to draw up the Financial Statements, but the singular basis of a true and accurate Financial Statement is an accurate record of transactions. It is essential for every business person to maintain accurate and complete records of financial activities.

Many small business people can not understand the importance of keeping financial records. They reckon, if they have done well thus far, why spend more on an accountant or on records keeping. Well you need to know that ‘head knowledge’ can only take you so far. If you plan to grow your business to a status where it will be highly respectable and would be considered by a going concern by external stakeholders, a finance department or function is sin qua non. Can you imagine a Zenith Bank, a Tastee Fried Chicken, or a Chair Centre without financial records? These companies were started by individuals like you and I.

Do not say those are big companies. Remember they started small and a key factor in their phenomenal growth is the fact that they had all the financial information they needed to make important decision at any point in time. They also had what it took to attract other people who share their vision to partner with them in their pursuit.