Record keeping is a process that most organisations cannot ignore - be it in the private or public sector. But what is record keeping and why is it important?
What is Record Keeping
Record keeping is the process of recording transactions and events in an accounting system. Since the principles of accounting rely on accurate and thorough records, record keeping is one of the basic foundations of accounting.
Importance of Record Keeping
So why is record keeping important and why should I care about it as a business owner?
1. Prevent fraud or theft
Having a fraud prevention process by keeping detailed records of your business expenses and transactions is essential for your company - be it as a startup, small and medium enterprise (SME) or large enterprise. Having an overview of your business cash flow can allow you to understand how much cash is coming in and out of your business and produce an accurate financial statement for accounting and auditing purposes.
2. Pay your taxes
With documentation and good record keeping practices, you can pay your taxes accurately, on time, and save on penalties!
In Singapore, if a tax payment is not received before the due date, a 5% late payment penalty will be imposed. Additional penalties of 1% per month may be imposed if the tax remains unpaid 60 days after the imposition of the 5% penalty. The 1% additional penalty will be imposed for each completed month that the tax remains unpaid, up to a maximum of 12% of the unpaid tax.
As a startup or SME business owner, every dollar counts and it is important to stay prudent on such financial matters.
3. Comply with laws
Good record-keeping practices are essential because it helps companies comply with various laws in various countries. Companies should establish good accounting and expense management systems to drive good record keeping practices and retrieve or file records easily.
Increasingly, accounting and expense management systems have partnered or integrated with each other to ensure seamless data synchronization and provide accounting-friendly solutions that are affordable and user-friendly for startups and SMEs.
4. Manage your cash flow
Cash is king when it comes to the financial management of a growing company. As evidently portrayed through COVID-19, maintaining a healthy cash flow that can sustain against pandemics and other unforeseen circumstances is very important if you want your company to survive in the long run.
This is where record keeping comes in. It helps you to identify and understand where your dollars are coming in and going out from and have an accurate projection of the health of your company’s finances.
5. Make business decisions
Every dollar within a startup and SME is very precious and should be well-spent. Understanding where your dollars are coming from and headed to is crucial in helping you better understand and make data-driven business decisions.
Expense management software is a digital cloud solution that can help you breakdown your business expenses and retrieve insights on your business spending. As a startup or SME owner, you would want to save as much time and money as possible and focus on other important business tasks to drive profitability and growth.
6. Save time and costs
When you need to file reports and conduct financial year end closing, a good record keeping system can allow you to save time and money as you do not have to panic and go through a last-minute rush to meet deadlines or hire someone last minute to handle it.
Digitising your documents can reduce the hassle and ensure you stay compliant with regulations and deadlines. By putting your documents and records online, you can increase operational efficiency, reduce transportation and storage costs, search records faster and easily access records from multiple digital devices.
Otherwise, you can also consider hiring a corporate secretary. It is possible for startups and SMEs to do so as there are affordable corporate secretary services available in the market that can be less expensive than hiring an additional headcount!
7. Prevent loopholes and oversight
Record keeping can help to justify and explain why the company management made certain decisions. Cash flow problems are also found to be one of the leading causes of failure for businesses and having consolidating records will enable businesses to make better decisions. With your business survival at stake, the possibility of having loopholes and oversight cannot be ignored by business owners and precautions should be taken.
Record Keeping Requirements
Different countries have different regulations depending on the local laws stipulated by the government. It is important for you to do substantive research and ensure that your company’s current record keeping system is compliant with the country regulatory requirements.
In Singapore, the Inland Revenue Authority of Singapore (IRAS) has stated a set of requirements on the proper records that companies must maintain and duration which companies should retain their records on their website. Certain documents are also required for tax deductions and tax record purposes.
Ways to Maintain Good Record Keeping
Now that we have understood the importance of record keeping, how can startups and SMEs instil a smooth and compliant record keeping system?
1. Organise your records
Records should be well-organised and segmented and clear instructions should be given such that employees have a clear idea on how they can input company records. For example, expenses can be labelled upon submission such that the total expenses across the entire company can be consolidated and filed into individual categories.
2. Creating a digitalised system
Digitalisation is something that should be familiar to most as talks of Industry 4.0 (the adoption of computers and automation and enhance it with smart and autonomous systems fueled by data and machine learning) had begun since 2015 and we have been moving towards Industry 5.0 (where humans will work alongside robots and machines) since 2018.
With the rapid advancement in technology and systems, many companies out there are offering new ways to move traditional processes to digitalised online systems in which it includes expense management.
Simply go online, search and compare for what you need, and you can start digitalising your processes almost immediately!
3. Outsource the work
Startups and SMEs have a small headcount and the existing staff may not have the knowledge, expertise or capacity to perform record keeping tasks timely and accurately. Outsourcing is a good way to get work done professionally and at an affordable cost.
Focus on what you are good at and outsource the rest. Not good at accounting and record keeping? Get someone to do it instead. Use your time and energy wisely by concentrating on business activities that can help you drive productivity and profitability better.
No use spending hours trying to figure out how to process your records when you can easily hire someone to do it professionally at a fraction of the cost.
Start Having Good Record Keeping Practices
Now that we have gone through the importance of record keeping and provided you with recommendations on how to do so, we hope that you will remember to stay vigilant and ensure that your records are properly maintained and retained!
If you are a startup or SME owner and have any tips and advice on how companies can maintain good record keeping, let us know and we will update the article accordingly. Let’s grow and build a holistic business ecosystem together.