The main objective of maintaining business records is to provide useful information which the owner can use in directing business operations. Effective record keeping becomes a very important management tool for the business owner as it enables him or her to efficiently run the operation. Good business records should point the way to cost reductions and to other plans for measuring and increasing profits.

A good record-keeping system has several basic requirements:

• • Keep the system simple, flexible and efficient to operate
  • Ensure that records are accurate and consistent
  • Generate only relevant information, as information overload will only serve to confuse and waste time
  • Keep records up to date by setting aside time weekly to record transactions so that the task does not become overwhelming

There are several components of a basic record-keeping system. Two examples are:

• • General Journal: A general journal is used to record all transactions of the business regarding revenues and expenses. It can answer the basic questions such as “Where is my money coming from?” and “Where is my money going?” Itemizing expenses can identify areas for possible cost reduction. Categorizing sales can keep track of what is selling best and what is not selling well.
  • Ledgers: The Accounts Receivable Ledger can answer such various questions as who owes you money, what amounts are outstanding and how long these amounts have been outstanding. It can be useful in helpful in deciding which customers should receive credit approval and what credit limits should be set. Poor management of accounts receivable can result in serious cash flow problems for your business.

The Accounts Payable Ledger is also a useful cash management tool. It can assist you in taking advantage of discounts offered by suppliers for early payment of invoices. It can also prevent your business from having a poor credit rating, as there will be less chance of overdue or missed payments. Interest charges add up on overdue accounts. A good credit record is very important, and especially so for a new business.

As your business grows, so will your information need and, consequently, your system. However, these basic records will contribute to running a successful business during and following its start-up. Eventually, the topic of computerization comes up when record keeping is discussed. It is best to understand a simple manual system before computerizing. As the volume of information increases, computerization will become more attractive and more feasible. A good bookkeeping system is a necessity for any new venture. The information generated will be invaluable in running your business. It will also save you time and money. The actual setting up and implementation of the bookkeeping system is not a place to cut corners. See a professional accountant when setting up your system to ensure that the end result will be useful and suited to your needs.