Why Small Businesses in Nigeria Need a Proper Accounting Record

Why small businesses in Nigeria needs to keep a proper accounting record

The new business era requires every business owner to keep a proper accounting record so that the business will stand the taste of time. It is not uncommon to hear most especially in developing countries like Nigeria so many businesses going into liquidation because of lack of good accounting record. Some of these business owners makes use of available cash at hand for the continuous purchase/payment of goods and services. Such methods employed by these business owners goes on until they discovers that the available cash can no longer sustain their business which may lead to the liquidation of such a business. Good accounting record is very important for both small, medium and large scale businesses.

In my last article, I made mention of some important accounting records that small business owners needs to keep. Later on, I discovered the need to also go into details of why Small Businesses most especially those in Nigeria needs to keep a proper accounting record. If you are a business owner that is not versatile in keeping an accounting record, you can hire an accountant that will help in doing so. The accountant should be aware of the day-to-day financial transactions going on in the business. The duties of such an accountant includes but not limited to; recording, classifying, interpreting and communicating the financial data of the organization to enable the parties involved in the business to make assessments and decisions.

Nigerian small business owners should be made to be aware on the need for proper record/book keeping. The use of assumptions and other inaccurate ways of keeping financial records should be discouraged. That is why some of such businesses liquidates in the early stages of its commencement.

Why Small Businesses in Nigeria Needs a Proper Accounting Record

1. It will help them to determine the profitability of their business

The best way to determine the amount of profit in your business is through an accounting record. After making purchases, note down the cost price and set your selling price. Calculate the percentage of profit that you wish to make from such a purchase. You can carry our a day-to-day stock keeping of your goods to determine the number of goods sold, goods unsold and use it to obtain information on profit margin.

2. It acts as a means of finance control in the business

To easily “X-ray” the level of your income and expenditures, in short, cash flow in your business, an accounting record is needed. It will help you to understand when to inject more capital, save profit, determine the amount to be paid for services and miscellaneous expenses in the business.

3. It reveals the assets and liabilities of the business

Assets can be defined as the properties owned by the business while liabilities is the amount owned by the business to outsiders. Without a proper accounting record in place, the business can accrue more liabilities/debts which may be detrimental to the business most especially when it outgrows the financial strength of the business. Knowing the assets of the business such as motor, equipment, stock, cash etc will help in proper financial decision making and growth strategy. Liabilities here could be loans and claims of outsiders of supplies of goods and services.

4. It shows the level of income and expenditure of the business

Like I mentioned earlier, the best way to determine the level of cash flow in a business is through an accounting record. A glance at it will reveal the level of income and expenditure of the business. Take for instance, if a business owner doesn’t have a proper accounting record in place and such a person decides to make use of cash at hand for daily purchases and payments in the business. A time will come when such cash will get exhausted leaving the business owner with huge debts and debtors. Such debts and debtors may or may not be traced. Such a trend in business can lead to the liquidation of such business.

5. It provides a permanent records for all financial transactions

Accounting information is among the properties of a business. It should be kept in a custody at all times. Such information can always be “called upon” when needed. It is useful when comparing business performance in the present, past and future projections. This record should last as long as the business. It can be stored online, for instance in “the cloud” or offline through proper documentation.

6. It provides a clue on how orders and purchases should be made

Knowing the level of your profit will help you to adjust your purchases and orders. Financial record will also be useful to know the right suppliers that requires continued patronage. For instance, if you discover that you normally runs in into a huge loss with goods from a particular supplier, you can chose to discontinue making orders from such a supplier or ask for the adjustment of price. The type and quantity of goods to be ordered will be easily ascertained through a proper accounting record.

7. Such records are used by the tax authorities to access the tax liability of the company

When proper accounting information is not kept, tax authorities can impose any amount as tax to the business on their best of judgement. This may lead to appeal for objection by the company and subsequently gives rise to dispute between the company and tax authorities if not properly handled. There is a need for a company to avoid unnecessary disputes through proper record keeping.

Record keeping is very essential to any company that is thinking of being in business in the foreseeable future. That is, in every attempt to maintain going concern of the business, you must try as much as you can to make an upto date transactions in your business. It helps to track the progress, retrogression of the business and also when adjustments is needed in the business. Good record will also assist to ascertain the level of transaction between various stakeholders in the business. At this juncture, I think I have made it clear why Small Businesses in Nigeria Needs a Proper Accounting Record.

Also Read: Types of Records that Small Business Owners Needs to Keep

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