There are certain rules to follow when starting a business and record keeping is one of them. A key indicator of a good start-up business is its ability to pay the required expenses necessary to sustain it. At the start, it may seem impossible to pay all the necessary expenses and regain back the investment on the business but financial record keeping should not be done away. With good records, the entrepreneur will know what to do and goals may easily be achieved with clear financial indicators on hand.
It is not necessary to have complicated record keeping schemes. A small notebook that can be used to take note of the expenses spent at the start will suffice. This is so because most likely, the first quarter of starting the small business may entail spending without gaining an income yet. However, it would be helpful to categorized expenses in that notebook for easy summation when financial statements are needed to expand the business. For instance, it would be helpful to separate the money spent in buying construction materials and the labor costs paid for carpenters and painters. In this way, segregation would not be difficult to do when the business grows.
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Further, when income is generated slowly, it will now be necessary to retain journals. Journals vary in columns but using different journals for sales/income, expenses, receivables and payables could help you track your financial situation well. It would also be helpful to avoid delay in record keeping and make it a habit to record daily so as not to miss anything. Remember, there is a saying in business to “always count the cost”, meaning every centavo matters for a successful start.
In addition, a common mistake that most entrepreneurs encounter is the inability to separate personal and business expenses causing trouble in the long run. The rule of separating personal and business expense is very important because there may not be enough cash to spend for the business if all of its small income are consumed personally. So it would be helpful to separately keep track of business expenses through records and it also might be helpful to record personal expenses as well.
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For businesses that easily grow or businesses with bigger capitalization, the business owner can record right away salary expense as a remuneration for the services rendered by him for the business. However, for small businesses with lower capitalization, it will be helpful to record small wages so as not to consume all the capital for personal use. In the long run, when possible, there will come a time that the business money is sufficient for an equitable salary and even substantial earnings when the business boom.
Lastly, as long as there is good record keeping is consistently done, financial analysis and maintaining liquidity of the business will be achieved. When performance is measured, performance increases.
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