I bet only 0.001% of the world popular know who the father of bookkeeping is. You’re about to become one of them. And yes – I was curious and I googled…
The wonderful world of the Internet tells us that while Luca Pacioli, an Italian monk of course, did not invent the system, he described a method (double-entry bookkeeping) used by merchants in Venice during the Italian Renaissance period. Following the dark ages, business in Europe boomed and it is believed that merchants began using the double-entry bookkeeping system to handle the volume and complexity of transactions.
Those smart Italians.
I had recently just helped a couple of small businesses clean up their books. One of the business owners was artistic and said, “Who needs proper books…” until the staff’s pay cheques were bouncing for several months in a row. Another was creative. ”Poo poo to you, CRA. I don’t need to file taxes…” until the company was delisted.
The less extreme stories are small business owners who hire an accountant only at the end of the year and bring out the cheque book and the shoe boxed receipts to do taxes.
I’m sure all of the above reasons for not keeping up-to-date books make logical sense to the owners. At the end of the day, as long as you fulfill your tax obligations (and CRA will ensure of that), no one’s concerned.
On the other hand, I can think of a few sensible reasons that small businesses WANT to keep proper books beyond just satisfying the tax men. Here are two good ones:
For keeping a pulse on your business
Unless you keep track of all of your business activities, you will not be able to get a true picture of how your business is doing. By having the accurate figures at your finger tip, you can pull up your statements at any time and know the basics, such as how much revenue you’ve made this month? Where did all the expenses go this quarter? Are you breaking even? Having an up-to-date book gives you control over your business.
For decision making and business planning
It is important to know what, where, and when to take business actions in order to run a successful business. By knowing how well you are doing financially, you can take appropriate actions to not just make sure your business is on track, but push it to the next level. Without the accurate picture of where you are financially, you can not make the right decisions.
There must be a reason for all the bookkeeping those successful Italian merchants followed religiously. Be a smart Renaissance business person.
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