Record Keeping For Entrepreneurs

RECORD KEEPING
FOR
ENTREPRENEURS
BY
WA I R I N D I D A N I E L
2/2/21 © 2018 Wairindi Daniel 1

OUTCOMES:
On completion of this lesson you should understand:
The importance of keeping records in a business.
The types of records that an entrepreneur should keep.
Why entrepreneurs fail to keep records? And the
dangers they face without doing so.
The process of keeping the records.
© 2018 Wairindi Daniel

2/2/21 2
INTRODUCTION
 Everyone in business must keep records.
 Record keeping is important in a business for it is the
only way to inform the entrepreneur how the business is
doing.
 In order to analyze the ‘health’ of your business you
need data! Therefore, a systematic process of gathering
data and recording it should be set up.

WHAT THEN ARE RECORDS?
• Records are the evidence of what the organization
does. They capture its business activities and
transactions such as contract negotiations, business
correspondence, personnel files, and financial
statements, just to name a few.
• A Document that memorializes and provides objective
evidence of activities performed, events occurred,
results achieved, or statements made.

RECORD KEEPING & RECORD MANAGEMENT
• Record keeping is the activity of organizing and storing all the documents, files,
invoices, etc. relating to a company's or organization's activities.
• To keep records, one requires a record keeping system or record management
system. A record keeping system is a system which captures, manages and
provides access to records through time.
• Records management (RM) is the supervision and administration of digital or
paper records, regardless of format. Records management activities include the
creation, receipt, maintenance, use and disposal of records.
• Records management refers to a set of activities required for systematically
controlling the creation, distribution, use, maintenance, and disposition of recorded
information maintained as evidence of business activities and transactions.

IMPORTANT RECORDS TO BE KEPT
• SME business owners need to develop the discipline of keeping track
of all the sales, cash proceeds, and overall turnover of their business as
well as other vital business records such as bank account statements,
and so on. The following documents should be kept:
• Client files: It’s a good idea to keep files for every client, job or project;
business agreements you’ve made in case you or the other party has a
question about it at a later date.
• Contracts: If your company is offering a service, ideally you should
have a contract for every client you provide work to. You’ll also likely
have contracts with your own suppliers.

• HR records: It is a good idea to keep employment
applications, emails and other business correspondence. You
should also keep personal records on file along with accident
reports, permits or any licences that are required in order to
carry out your business.
• Business records: At a minimum you need to keep a copy of
your Articles of incorporation, a record of the minutes from
any formal meetings and your Registry of Companies filings.
You may also have Trademarks and registrations.
 General business information: General business information
could include vehicle-tracking data to help monitor and reduce
mileage. It could include job-tracking data to help optimise your
business or it could include correspondence from your customers.
 Production records; Operation records such as labour, farm
inputs, tools and equipment costs; Cash transactions.
• Purchases, sales, payrolls, and receipts must be preserved safely in
a filing system.
• Keep a separate file or folder for these documents Suppliers’
receipts

 General Accounting and tax 1. Revenue
records 2. Cash book/Petty cash
1. Business expenses 3. Vehicle logs
2. Bank statements / credit card 4. Invoices
statements
5. Cancelled cheques and cheque
3. Credit Records stubs
4. Annual tax returns 6. Purchase orders
5. Quarterly tax filings 7. Assets Records
6. Payroll 8. Debtors Records
7. Inventory Records 9. Production records
8.
2/2/21 Sales © 2018 Wairindi Daniel 9
• Buying and selling transactions. These receipts should also be filed
separately.
• Keep documents related to business expenses.
• Even small cash payments should be recorded, and you should
always have a cash disbursement or petty cash payment voucher
ready.
• Documents related to assets, both movable and immovable, should
be preserved so that it makes accounting for these easy.
• If your small business employs other people, you should keep
records of employee compensation. This will assist you in the event
of possible dispute with employees.
• Keep copies of all receipts and invoices issued by your business.
This helps you to keep track of who gave you which payment,
how much it was and why and when. This also helps keep track
of your businesses sales and creates a basic financial trail.
• Also keep a record of expenses; all payments made. Make it a
habit to ask for a receipt whenever you spend money on behalf
of the business. Keep all payment documents in a well annotated
or labelled file preferably in date order.
• If you own more than one small business, keep separate records
for each.
WHY BUSINESSES FAIL TO KEEP RECORDS
• Most of our small business owners unfortunately perhaps
take record keeping for granted, but it can make the
difference between success and failure in business. It’s
basically one of the many reasons why most small
businesses sometimes collapse.
• The most common reason why small businesses do not
keep records is usually the belief that it is expensive or
very complicated to do so. Maybe but this may not be so
actually. This may not be that expensive.
WHY BUSINESSES FAIL TO KEEP RECORDS
• Another myth is that record keeping requires
specialized accounting skills. Often-times, it requires
just business common sense and the basic ability to read
and write and of course the commitment of the business
owner.

HOW LONG SHOULD RECORDS BE KEPT?
• With the current developments in technology,
technology need to be embraced in business
record keeping.
• With the falling cost of storage and data
retrieval, there should be no excuse now to
keep information indefinitely.

WHY KEEP RECORDS
• Keeping accurate and up-to-date records is vital to the success of any
business. Any record keeping system should be, comprehensive,
accurate, reliable, easy to follow, consistent as to the basis used and
be very simple.
• Good record keeping is vital in regards to meeting the financial
commitments of the business and providing information on which
decisions for the future of the business can be based.
• While the business maintains records to monitor and record its
normal business activities, it is also necessary because of obligations
under the taxation laws.
WHY KEEP RECORDS
• The business must realise that records kept will be one of the
most important management tools it possesses and,
therefore, it should be allocated due importance.
• Many business owners invest a lot of time and effort into the
running of their business and yet fail to realise the
importance of maintaining good documentation. The
business owner is looking for the maximum return from their
investment and the maintaining of good records is part of
that equation.
IMPORTANCE OF RECORD KEEPING CONT’D …
In order to fulfil the needs identified above you will need
different sets of records. An entrepreneur should maintain
records to meet his or her business requirements. Good
business records will help you do the following:
• 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.
• Project your tax liability: During that first year of
business you will need to project your tax liability so that
you can make estimated tax payments. Estimated tax is
the method used to pay tax on income that is not subject
to withholding.
• Prepare your financial statements quickly &
Accurately: These include income (profit and loss)
statements and balance sheets.
• Financial statements can help you in dealing with
your bank or creditors and help you manage your
business.
• Identify source of receipts: You may receive money
or property from many sources. You need this
information to separate business from your personal
receipts and taxable from nontaxable income.

• A system to Keep track of deductible expenses: If
you don't keep your receipts you may forget
expenses when you prepare your tax return, unless
you record them when they occur.
• Prepare your tax returns: These records must
support the income, expenses, and credits you report.
• Support items reported on tax returns

• Support items reported on tax returns: You must keep
your business records available at all times for inspection
by the URA. If the URA examines any of your tax
returns, you may be asked to explain the items reported.
A complete set of records will speed up the examination.
Normally, tax records should be kept for three years, but
some documents — such as records relating to a home
purchase or sale, stock transactions, business or rental
property — should be kept longer.
Proper business record 3. Act as resource for new
keeping provides the strategies.
business a real-advantage 4. Tells about the success of
over competition in your past campaigns and
different ways: improvement in present
1.It helps you to manage campaign.
your accounts, interests,
taxes and working costs
effectively.
5. Helps in finding solutions 8. How your business
for business issues. performs against your
6. Tells about the customer competitors.
service and employee 9. Tells about hidden and
efficiency. unexpected costs.
7. Helps in monitoring 10. And most of all it is the
company growth rate and most resourceful adviser
profit. when ever your business is
in serious trouble.
11. Maintenance of records 13. Lend credibility -
can help you protect your particularly if one is called
business, measure your to give evidence of a
performance and maximize particular fact or matter.
profits.
12. It protects the worker
and the agency particularly
from the later claims of
negligence.
14.Provides information to 17. Saves a lot of time and
enable the control of cash in effort. Time Utilised more
the business. effectively.
15. Provides management 18. Keeps a good track of
information to base business the costs of staff and their
decisions on. performance.
16. Contributes promptly to
assessing the financial
situation of the business at
any time.
19. Measures the business 22. Helps in detecting thefts
performance against the within the business itself.
projections that were
originally set down in the
business plan.
20. Highlights quickly areas
where problems could arise
and enable remedies to be
put in place.
23. Provides valuable
information and details for
the future sale of your
business where that is
required.
24. Increases the chances of
the business operating and
achieving success.
25. Creating a knowledge
WHAT WILL YOUR RECORDS TELL YOU?
The following check list will give 4. How often you turnover your
you an idea of some of the things stock.
that your records will be able to 5. Your gross profit and your net
reveal as far as your business is profit.
concerned:
1. The income you are generating
now and how much income you
can expect to generate in the
future.
2. How much you owe for goods or
rent or other expenses.
3. How much cash you have©on
2/2/21 2018 Wairindi Daniel 28
6. How your financial situation 9. Which of your products are

compares with last year or with making a profit and which are
your budgets. running at a loss?
7. How much cash is owing to you 10. How your business compares
at any time and how long has it in financial terms, as well as
been outstanding. product quality and service
8. What are your actual expenses supplied etc. with those of your
and overheads compared to your competitors and with the industry
projections? in general.

 Good records will keep you on your toes and enable you to monitor
every situation.
 It is no use finding out six months down the track that a particular
product has been selling at a loss, or that your sales are 50% less
than what was in your budgets, or that you are owed $50,000 more
than expected at any particular time of the year.
 After you have put together a good system for recording, make sure
you use the system to help you in the business.
 Monitor it, protect it and back it up.

DISADVANTAGES OF POOR BOOKKEEPING:
1) If you will not keep the good records then it may result in businesses exhausting the
budget and spending more than is coming in due to which you may face problems with
suppliers, utilities, payroll and more.
2) The brand recognition and the reputation of the business can become tarnished if any
problem arises when it comes to payroll. Failure to pay your employees can also result in
legal consequences.
3) You may need to file bankruptcy or close your business if you fail to keep good records
from the beginning.
4) In many countries, bad record keeping and consequently having insufficient information
to prepare accurate tax returns are criminal offenses that can lead to tax office prosecutions.


DISADVANTAGES OF POOR BOOKKEEPING:
5) In many countries, trading while insolvent is a criminal offense. Insolvent is
when you cannot pay your creditors when due, not when you run out of cash,
so determining solvency requires record keeping. Even if somebody is too
well connected to go to jail, a decade in courts is still expensive.

6) In other cases, bad record keeping that happens to lead to increased revenue
looks like fraud and probable jail. Although headline cases of bad record
keeping causing insolvency tend to involve rich people spending a decade in
court but never going to jail, that's because rich people have friends; non-
billionaires do not hit the headlines but go to jail.

CREDIT
 Credit is the trust which allows one party to provide resources to another
party where that second party does not reimburse the first party immediately
(thereby generating a debt), but instead arranges either to repay or return
those resources (or other materials of equal value) at a later date.
 The resources provided may be financial (e.g. granting a loan), or they may
consist of goods or services (e.g. consumer credit). Credit encompasses any
form of deferred payment.
 Credit is extended by a creditor, also known as a lender, to a debtor, also
known as a borrower. Wikipedia: http://en.wikipedia.org/wiki/Credit_(finance) CC: BY-
SA

DEBTORS
 A debtor is an entity that owes a debt to someone else.
 The entity may be an individual, a firm, a government, a
company or other legal person.
 The counterparty is called a creditor. When the
counterpart of this debt arrangement is a bank, the
debtor is more often referred to as a borrower.
Wikipedia: http://en.wikipedia.org/wiki/Debtor CC: BY-
SA
CASH BOOK
 A double-entry bookkeeping system is a set of rules for recording
financial information in a financial accounting system in which every
transaction or event changes at least two different nominal ledger
accounts.
 The name derives from the fact that financial information used to be
recorded in books - hence "bookkeeping" (whereas now it's recorded
mainly in computer systems) and that these books were called ledgers
(hence nominal ledger, etc.) - and that each transaction was recorded
twice (hence "double-entry"), with the two transactions being called a
"debit" and a "credit". Wikipedia: http://en.wikipedia.org/wiki/Cash_book,_Journal CC:
BYSA
PROCESS OF KEEPING OF RECORDS
An entrepreneur should entrust record keeping
to a knowledgeable person. This can be an
ordinary book keeper or a certified or Chartered
Accountant.
We will read the case below to understand the
importance of record keeping.

JOHN ENTERPRISES (A CASE STUDY)
 John operated a small scale business which dealt in selling fruits of
all varieties, such as pineapples, oranges, passion fruit, bananas,
watermelons, grapes and many others. He received his supplies
directly from the farmers.
 To ensure good operation of the business he tried very hard to keep
good records.
 He maintained a supplies book where he recorded all the supplies
from each supplier.
 In the supplier book he recorded the quantities supplied and the
amount of money the supplies were worth.
 He also maintained a cash book where he recorded the cash
sales. He also recorded any credit given to his customers on
small pieces of paper. He also recorded all the business
expenses in a hard cover book.
 John was very happy with the record keeping but one day
the pieces of paper on which he recorded the creditors
disappeared and subsequently, he was not able to tell how
much he was owed by his creditors. John found it difficult to
reconstruct the credit from his memory.
 In 2017, the Uganda Revenue Authority staff visited John’s
business and demanded to see John’s records. John was
surprised to hear that he was required to maintain records for
inspection by the Uganda Revenue Authority staff.
 The URA staff gave him one month to prepare the records,
lest they would simply estimate his tax liability for the past
period basing on industry averages.
 John did not know where to begin.

ACTIVITY - JOHN ENTERPRISES (20 MINUTES)
 Gather into groups of five and discuss this case.
Take record of:
1. How effective in your opinion was John at record keeping?
2. Identify the records that John should maintain to meet the
requirements of the URA.
3. In the group’s opinion, what methods could John employ to
improve his system?
4. What are the dangers of Poor Record keeping to an
Entrepreneur such as John?
CONCLUSION
We have learnt the importance of business records and the
different types of records that an entrepreneur should
maintain.
We have also learnt why businesses fail to keep records
plus the dangers they may face without sufficient business
records.
We have used the John enterprises case to understand how
to maintain records.

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RECORD KEEPING

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