Is lack of Financial Record Keeping linked to Company Failure?

We all know that the number one reason for companies to fail is inadequate or poor cashflow. However, have you ever stopped to wonder what the other main reasons for company failure are? According to the Australian Securities and Investments Commission (ASIC) the other reasons are poor strategic management of the business, and poor financial control including lack of records.

So what are financial records? They are your invoices, receipts, documents of primary entry and working papers or other documents needed to explain the methods by which financial statements are made up. Directors must keep these records for seven years.

What is important to understand is that these records may be kept electronically, but that a hard copy must be available upon request.

By using a cloud software records are easily accessible 

It has never been easier to maintain good books with the suite of electronic and cloud software packages available. By using a cloud software solution you can ensure that everyone who needs to has access to the accounts without having to physically be present. This way you can work on your books from your office, but your accountant can access them from their office. Having them on the cloud also provides a layer of protection and disaster recovery.

It is interesting really because the three top reasons that a company fails are really integrated. If you don’t have accurate and up to date reporting then you can’t manage the business or the cashflow. Reporting is critical in understanding, and forecasting your financial position. This in turn helps you make better management and strategic decisions. So while it might be understood that cashflow is the number one reason for business failure, we would argue that you can’t have good cashflow without good records and a means of accurate reporting.

What happens to Directors who fail to maintain accurate records?

While financial records are important to the successful running of the business, you need to keep in mind that there are also regulations about this. Directors that fail to keep books and records is an offence under the Corporations Act and can lead to fines of up to $4,375 or 6 months imprisonment. So there is significant reason to ensure that your books and financial records are kept up to date.

If you are concerned about your financial records and the processes you have in place to manage this make sure you contact us and we can help you to review your systems and software.