3 – Benefits of Records Keeping for SMEs

Records and information are among the most valuable resources any business can have. There is so much information being generated by every activity and transaction that takes place in a business.
Business owners should be keen in ensuring that this information does not go to waste. SMEs should never be too busy to keep proper records. In this article I will try and elaborate the importance of records and information for SMEs.

In 2002, my friends and I established an informal evening “joint” where we sold “chips kuku” (grilled chicken & chips) at a parking lot. To get started, we bought a grill and some kitchen utensils. There were daily runs to the market to buy chicken, potatoes, cooking oil, spices, charcoal etc. We did most of the work ourselves including going to the market, peeling potatoes and barbecuing. Within a month we had gained traction, our evenings got so busy and we seemed to be making money. We thought it was a good gesture to absorb the joint’s transport costs by buying stuff when doing our personal errands. No one was designated to keep track of sales and expenses. We got caught up with the fun and chaos of selling to meet demands and keeping clients happy. Within a short while, it was already difficult to account for how much chicken and potatoes were bought or sold. How much charcoal was consumed per day etc., Trying to figure out our sales and expenses was difficult because we had bits and pieces of information here and there or not at all. Simply put we did not keep records. When we eventually called it quits, we could never really tell whether we made profits and if there were any losses – again we simply didn’t have records to prove this.

Records provide evidence of business activities and transactions. Please do not get too legalistic with the term evidence. In this way, you will not limit your business records to sales and expenses for purposes calculating taxes. SMEs should expand their scope of records to also include records of their staff, business licenses and permits, contracts, decisions, policies, procedures, images etc.; Remember the purpose of keeping records is to collect evidence of your business activities and transactions.

Going back to our chipsi kuku joint, what we sold, how much we bought it at and when, could only be provided as evidence if we kept proper records. But so what if we kept proper records, what exactly would have been the benefits?

1. Evidence based decision-making.

The primary benefit for keeping records by any business owner is to facilitate evidence based decision-making. If our joint was making losses, the only way to have found out would have been to look at the sales and expenses records. If the expenses were on a high side, it would mean diving deeper into the expenses and figuring out where most of our money was being spent to cover for expenses. However this information would have been impossible to find without records evidently showing high expense items. If for example, we figured that we spent more money on charcoal, a decision would have been made to reduce the cost of charcoal e.g., by exploring efficient ways of using charcoal. For the record, this decision also needed to be documented.

Due to developments in technology and the inherent limitations to our conventional ways of keeping records, in my next article, I will address how automation further enhances evidence based decision-making for SMEs.

2. Efficiency Gains

The second benefit for keeping records is efficiency gains. Since evidence showed that we spent more money on charcoal and this was eating up on our profits, a smart one among us, would have probably gotten a light bulb moment and suggested not to fire up the charcoal too early before clients came, to save up on the amount of charcoal that would have otherwise been wasted. For the record, this decision should have also been recorded and kept as a record. The need for efficient use of charcoal would not have easily come about, if the high cost of charcoal was not provided as evidence in the records.

3. Institutional memory: To tell a story

As a third benefit, your business records, if well captured, should tell a complete story about your business.

The fabolous story of the chipsi kuku joint I just shared could have been fictional, and the friends whose names were not mentioned could have been imaginary business minded friends that I wished I had then.

To know whether the joint actually existed or we actually used charcoal and sold chicken and not matoke, I would require to produce records as evidence of business transactions. If I was a researcher and found records of the joint well kept, this is a kind of story the records should tell me…

“In 2002, a group of friends running chipsi kuku joint realized they were not making good profits. In a meeting of owners of September 2002, after evaluating their business expenses, it was decided to explore options to cut down the consumption of charcoal since it contributed to 40% of their expenses. A decision was made to fire up the charcoal an hour before clients showed up in comparison to the initial time of two hours in advance.”

The key to realizing these benefits is on how your business creates, captures and stores its business records and information. Since SMEs may be at different stages of records keeping,  where some are not keeping records at all, or have established some form of records keeping system manually or electronically, I will also prepare an article with questions to juggle your mind on how well your current records keeping practices are helping you realise the benefits.

While I appreciate how busy business owners can get, the much needed solution to the chaos that keep SMEs busy may well be in the information being lost by ignoring to properly keep business records.

Question: If you were to look at your business records today, what story will they tell about your business? Please do let me know.