How Important is Record Keeping to a Business?

Guest post by Chris Baskerville. Read the original post on Quora: How important is record keeping to a business?.

Follow Chris on twitter @ChrisBaskervil.

Record keeping is vital to a business.

Record keeping leads to the production of financial reports which are used to make critical decisions about a business.

To use an analogy:

“Record keeping (leading to financial reporting) to a business is the equivalent of the dashboard displaying flight instruments to an airplane pilot”.

Without the dashboard displaying flight instruments:

1. How will you know what direction the plane is headed? (profit and loss statements);
2. How will your foresee up and coming storms in your flight path? (forecasted cash flows);
3. How can you determine your plane’s ability to weather the storms or navigate around them? (balance sheet); and
4. Whether you have sufficient fuel to get to your destination? (cash flow).

Poor record keeping leads to poor instrument display, which leads to poor decision making, which leads to either:

1. A business heading in the wrong direction;
2. A business that runs out of fuel before reaching its destination; or
3. A business that crashes and burns at the first sign of trouble.

Poor record keeping has a direct nexus to failed businesses.

Now with the assimilation of cloud-based accounting programs linked directly to your bank account, with automatic predictive transaction recording, there is simply no excuses for failing to keep proper records and prepare financial reports that allow proper decisions to be made.

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