Top 5 Ways your Financial Records Can Help You Manage Your Business
Congratulations on running your SME Business. It takes tenacity and thorough planning to get to where you are. However, as you know, owning and managing a business is an eventful journey, and every milestone should make your business entity more sustainable and profitable, and most importantly, enhance your credit rating to enable you access to loans. This list gives you 5 benefits of keeping accurate financial records for your business, and tips on how to implement financial management to spur the growth of your business.
Financial Records are Necessary to Get Credit
Your business will often need credit to finance its operations, in order to finance its operating expenses and remain financially viable. SMEs apply for business loans from banks and other financial institutions, and also credit terms from vendors. In most of these situations, the lender will request to see your Balance Sheet and then run your credit rating report to decide whether you are creditworthy. A balance sheet will show how much money is flowing through your business, and how much debt you are carrying in relation to your capital and assets.
As a business owner, having financial records is a step in the right direction to ensuring that your business has access to financing options. It is critical that you understand loan application requirements and procedures, and credit rating for loan applications. Knowing your credit rating and credit profile will help you understand how banks might rate your business as a potential borrower. Banks rate a prospective borrower on the basis of several factors including its financial condition and financial performance. View a Sample Rating Report. We help you analyze and interpret your credit rating report, which is simple and easy to follow, and based on credit assessment standards of Philippine Banks.
Financial Records and Cash Flow Management
A business owner needs to know if he has enough money to meet financial obligations, like paying creditors and employees. A record of all incomes and expenses in a profit and loss account (statement of comprehensive income) is a critical business record, which records all business incomes and expenses, and tracks the business net income. In addition, a cash flow projection will help you identify the timing of your income and expenditure and inform you whether the business is solvent or insolvent. Based on what the cash flow statement reveals, the business owner can take appropriate steps to improve his income or reduce his expenditure. It is highly recommended that you invest in a suitable accounting system to generate accurate and timely financial statements for your business.
Financial Records are Decision Making Tools
Financial statements give you a snapshot of your company’s financial position hence they are critical decision making tools. Your financial records will show business trends, including the fast moving and slow moving goods and services, and the margins from each product or service. An accounting system will enable you to know your inventory levels, and the value of your business stocks.
Financial records will also show the rate at which you are collecting receivables, and the frequency of paying creditors. This will help you flag any cash flow problems, prioritize payments, and identify valuable business partnerships. Accounts receivable records will highlight uncollectible debts, and this information will help you formulate suitable collection plans. Various reports will help you answer important questions about your business, such as what you own, owe and how much your business is making. These answers will help you make informed strategic decisions to make your business more successful.
Financial Records are Necessary for Tax Compliance
Accurate financial statements are necessary to calculate periodic tax obligations, and may be audited by the Bureau of Internal Revenue from time to time to ascertain whether your business has complied with tax laws. Your tax obligations include Income Tax, Excise or license Tax and Value Added Tax. You will be required to provide documentation of the information reported in your tax filings, which includes financial statements and any other support documentation or records that may be required.
All primary financial records including daily sales records, purchase invoices, sales receipts, payroll records, utility bills, transport expenses, rent receipts, bank statements and all other business expenses must be maintained for future reference.
Business owners will ordinarily want to pay as little tax as possible; however, it is recommended that you conduct accurate tax liability assessments for your business. This can be done with the help of tax experts and accountants. The punitive effects of tax evasion and avoidance outweigh the perceived benefits (savings), and we recommend that your business strives to remain tax compliant.
Financial Records and Budget Preparation
To prepare a Budget for your business, you will require accurate financial records. Future income and expenses can be projected based on available information to give direction to the business. A business Budget also provides a strong foundation for you to make changes and implement required improvements to your business, and to monitor the performance of all areas of your business. The key to successful budgeting is regular reviews of projected values (production, sales, purchases, incomes) against actual performance, and then identifying causes of the performance gaps. This information is valuable in helping you forecast business trends, and plan adequately for continued growth.
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