Most Entrepreneurs are usually fixated on capital. Why not? Since it’s the seed needed to get their business started. They go extra miles to secure this ‘rare gem’. Some even go the extent of obtaining high risk capital like loans whilst some use their savings, borrowings from friends and family.
Before I dive deeper, let me define the two terminologies to avoid any ambiguity. Capital as defined in layman terms is the resources which could be either cash and/or assets employed by a business owner to carry out business. In other words, it’s the resources (Cash, fixed assets e.t.c.) invested in a business to generate income While book keeping is the act of keeping records of the financial affairs of a business.
To the million dollar question, ‘capital or book keeping; which is more important ‘? Before I wrote this piece I did a little survey and most people favoured capital has being more important with reasonable argument to back it up. As much as this sounds like the truth, it’s more of a myth. Bookkeeping is as important as capital. This implies that the moment plans for raising capital commences, book keeping should be the complementary thought. But the bitter truth is that most emerging/new entrepreneur's see book keeping as a necessary evil that can be avoided.
Truthfully, bookkeeping can be very stressful and painstaking but the pros to be derived outweighs the cons.
As an emerging/new entrepreneur have you ever wondered why big organizations pay handsomely to employ profound Accountants? Little wonder Warren Buffett said “Accounting is the language of business”. That means the medium through which businesses communicate to the Business owner or any other interested party is through Accounting/Bookkeeping. Not having this system in place will be synonymous to been deaf to one’s business.
That being said, let’s examine the benefits of Bookkeeping and why it’s as important as capital.
· Since capital is like the seed of a business, bookkeeping is likened to be the soil. It's common knowledge that seeds only produce good fruits when planted on a good soil. So also for a business owner that desires significant growth in business should sow the seed of capital on the good soil of bookkeeping in order to have a firm and sustainable foundation for the business.
· Also, it shows the trajectory of the financial position of a business over a period of time. It’s pertinent for a business owner to be in the know of the success or failure of their business dealing over a period of time in order to make informed decisions that will positively impact the financial position of the business and inevitably, the growth. This can only be achieved by having a system that captures the bit of every transaction. With bookkeeping, you can identify money-making opportunities, avoid cash-flow problems, and find ways to increase income or decrease spending.
· Furthermore, one of the ways of having competitive edge is having good effective budgets i.e. accurately planning the occurrence of events before they occur. It requires an accurate report of current spending and revenue to help compare actual results with projections in the budget. A bookkeeping system facilitates up-to-date financial information that can be cross-checked with the budget to make sure that the company is not overspending or underspending.
· One other benefit of bookkeeping is that it helps to reduce the risk of detecting leakages in the business either by theft or fraud. This may be less of a concern to you but there is a possibility of theft or fraud occurring in as much as you have employees or partners. Bookkeeping will help bring to limelight suspicious transactions that occur and investigation will help solve this puzzle.
· Every business needs addition fund. If you have expansion plans for your business and looking at sourcing from third parties like banks and venture capitalist, financial statements is an inevitable requirement. You don’t need to wait for the need to arise before you start scrambling to put one together. In other to make your business more alluring to these third parties, showcasing a track record of book-keeping is one of the keys.
This is a wake up call to all SMEs’ to begin to put Bookkeeping into perspective as a necessity for the growth of their business.
With the advent of technology and simplified business processes, there are several ways SMEs’ can do their Bookkeeping without necessarily breaking the bank to employ a profound Accountant and not cracking themselves to go through the painstaking experience of Bookkeeping. To read more about that, make a date with the next article.