Owning a small business comes with a lot of paperwork. Sometimes, it’s hard to decide which documents to keep, especially when they pile up in your office. You need to keep several kinds of records to stay compliant with laws and measure your progress.
A business record is written evidence summarizing a transaction carried out by a person in his business at a given time or over a given period. Business records are normally kept in books in an organized form. Business records can also be maintained in electronic format.
Business record keeping is a systematic procedure by which the records of an organization are created, captured, maintained, and disposed of. This system also ensures their preservation for evidential purposes, accurate and efficient updating, timely availability, and control of access to them only by authorized personnel.
Why Keep Business Record?
Good record keeping is an essential part of running a successful business. The foundation of solid business record keeping is learning to track your expenses effectively. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return. Right from the beginning, you should establish a system for organizing receipts and other important records.
Types of Business Records
A business entity should keep business records which provide sufficient details on all transactions undertaken at any given time. These records should be based on documents containing primary information on each transaction carried out in the business. The documents should also be properly and safely kept. Generally, business records include the following:
1. Accounting Records: Keeping track of money flows and having a good basis in accounting makes good business sense for owners of both small and large businesses. Accounting records document your business’s transactions. Section 331 of the Companies and Allied Matters mandates every company to keep accounting records. By law you must keep accounting records for a minimum of six (6) years after the record is created. Non-compliance with this law is an offence which carries a maximum prison term of six (6) months or a fine of N500 (Five Hundred Naira).
Accounting records help you to manage your business better by:
• planning and monitoring your business transactions and the corresponding income and expenditure.
• identifying easily and correctly whether your business is making a profit or loss at any given time on basis of facts and records.
• following up consistently on your obligations with business partners (suppliers and customers).
• providing a basis for mobilizing additional capital from banking or cooperative institutions.
• providing a basis for preparing meaningful statements of accounts for the business and for carrying out audits.
• separating private transactions from that of the business undertaking.
Accounting records also help you to manage YOUR TAX AFFAIRS better by providing basis for:
• computing correctly your tax liabilities by yourself.
• filing your tax returns accurately and on time.
• paying only the fair tax.
• claiming your lawful entitlements under the tax laws e.g allowable expenses, capital allowances on assets in use in your business as well as tax credits and tax refunds where applicable.
• avoiding tax assessments raised by the Tax Authority using other methods under the laws that may not necessarily be favourable to you as a taxpayer.
• avoiding protracted tax disputes.
• avoiding contravention of the tax laws.
2. Fixed Assets Records: Fixed Assets are permanent or long term assets which a person acquires to use in running the normal business but are not part of his trading stock such as building, land, plants, equipments etc. For each fixed asset, record the date, type, details of supplier or buyer, quantity, price and value of the assets bought, sold or written off.
3. Expenditures Records: They are used for recording expenditure on the day-to-day running of business e.g stationery, maintenance costs, travel, utilities (water, power, telephone etc). For every expenditure, record the date, type or class, quantity (where applicable) and value of expenditure item.
4. Bank Statements: These are records of all your accounts with the bank. These accounts might include records of your savings, investments, and credit cards. You can reconcile bank statements with your accounting records. Comparing bank records to your financial records helps you see mistakes in your books. If your bank statements do not match your accounting records, there might be an error.
5. Legal Documents: Every duly registered business is expected to keep proper record of its legal documents such as incorporation documents (memorandum and articles of association, registration form etc), post incorporation documents (register of members, proof of annual returns filings etc). Also, you should keep track of your company’s minutes of meeting, employees’ contract, general contract and any document giving rise to legal entitlements and/or obligations.
6. Business correspondence: This means the exchange of information in a written format for the process of business activities. Business correspondence can take place between organizations, within organizations or between the customers and the organization. The correspondence refers to the written communication between persons. Hence oral communication or face to face communication is not a business correspondence. All business correspondences whether in-house or otherwise should be properly kept.
Keeping Business Records for Tax Purposes
Various Tax Laws of Nigeria require a taxpayer to keep proper records, books and accounts of all business activities which are adequate for the purposes of taxes. Some of the tax laws provide further that failure to maintain the record, books and accounts that are adequate for the purpose of taxes is an offence and attracts penalty accordingly. This implies that:
• The records, books and account should reflect a true and fair view of the business to support any declarations made by a taxpayer for tax purposes.
• There are fines and penalties associated with a taxpayer failing to comply with the requirement to keep records, books and accounts.
• It is mandatory for you to keep proper business records.
We know that running a business can be overwhelming sometimes but a good record management could help simply the process. You need good records to monitor the progress of your business. Records can show whether your business is improving, which items are selling, or what changes you need to make. Good records can increase the likelihood of business success. Furthermore, good record keeping allows an organisation to document and retrieve information that can be used for the purposes of reporting, assessing, planning, monitoring and reviewing. Keeping accurate records is also a legal requirement, and poorly kept data could result in a penalty from Federal Inland Revenue Service (FIRS).
In a nutshell, a good record is beneficial to the business entity in ensuring good understanding of the affairs at any given time.
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