The Importance of financial records

When you can’t work out why your business is in trouble, you must always review the business financial records.  You may find that the records have not been properly maintained and that may be the reason why you can’t determine the real profitability of the business, let alone matters of stock, debtors and creditors.

Whilst in most cases financial records are kept, they are often inadequate as they do not provide the current information which is required for operational purposes or to satisfy a lender when seeking finance.  Also, they can be untimely because the information is so old it is of historical interest only and of little help to the day-to-day decision maker.

In other cases, the information may be available but you are unable to interpret it so as to obtain the full benefit from the various financial reports.  You may then come to the view that there is not enough discussion or communication with your accountant.

Unless there is an up-to-date Profit and Loss Statement, needless to say it is almost impossible to determine if the business is making profits.

Unless a proper debtor’s ledger is maintained, the business will be impeded in the recovery of its money owed by the customers.

In addition, unless a proper creditors ledger is maintained, the client will fast fall behind in meeting creditor payments leading of course to expensive court recovery actions.

Stock build-up means too much money is tied up in stock to the point where stockholdings do not reconcile with sales. Holding excess stock can dry up the cash flow very quickly.