ON FINANCIAL RECORDS: THE FACTS YOU SHOULD ALWAYS REMEMBER

This is for those who are doing business and run Non Governmental Organizations (NGOs). In many cases, we put less effort on day to day recording of transactions of our organizations. It is not strange to find organizations ‘cooking’ books of accounts without any actual records.

If you are one of such people who don’t put attention to correct financial records, read what you are missing

Tax burden reduction:

Not keeping records properly may cause you to forget expenditure that you could mention in your records in order to reduce your tax burden. Most common forgotten business expenses include meeting expenses, transport expenses, telephone expenses for calls you make while you are out of office, allowances to employees, and some of office stationeries.

Apart from not mentioning important information that can save you money, you can also find yourself in a position where by you have records but those records do not have supporting information, remember that your country’s Tax Authority will only recognize financial information which have supporting documents- source documents.

Solving Problems

Well prepared financial records help people with authorities being accountable, without them unnecessary doubts may be raised, sometimes such doubts bring chaos to the organization. Think of a business which is run as a partnership. If one partner spends money for a project but fails to account how the money was spent, the other partners though may show understanding of trust, they are likely to create doubts for large amount of spending which went on without proper records.

Financial records gives historical perspective on how an organization is run hence can be used as a source of information to resolve a problem which needs historical data from the organization. Example of such information is when a store manager is fired for mismanagement of the store, past information from store records can be traced to know how the manager performed.  Another example; when a business is facing tough competition, financial records can be traced to learn possible ways to cut down expenses.

Managing the future and expansion

Well prepared financial records, may provide a true picture of performance and state of financial position of your organization. Together with other management tools, financial records can help in predicting the future, create strategies for competition and make plans for expansion.

Your organization’s current and past financial information can be used as point of reference for future desired position or future decisions.

 

If you want to bring new investors or members to your organization, remember that to avoid future conflicts you need to show them the true picture of performance and state of financial position of your organization

Succession

When existing managers are replaced by new managers for your organization, there is a need for the new managers to obtain clear picture of the financial state of your organization so that they know how to arrange their moves.

Past financial information about your organization may give direction and stand as benchmark for future decisions by the new managers. If the past financial information are wrong or misrepresent your organization, the new managers may be misdirected and this may cause them make inappropriate decisions.

Some owners or founders of business just find it difficult to let others lead their organizations just because the records are not ‘straight’; hence letting other people lead is to expose the past and current weaknesses of the founders or owners.