The founder of Dell Technologies, Michael Dell once said, "Companies will succeed and fail based on their ability to translate data...into insights and actions and products and services."
As the family business grows through various phases from its start-up to maturity, the need to keep proper records is the crux of its success...or failure. The achievement of most successful family businesses all over the world is largely attributable to their good record keeping culture, which enables them to evaluate performance against set standards.
Record keeping entails the deliberate act of creating, maintaining, organizing and archiving all the documents, files, invoices and other relevant documents relating to the organization's activities. Various family business experts have underscored the importance of effective record keeping in family wealth maintenance and its successful transitioning to future generations. The Australian Institute of Company Directors in 2017 identified poor record keeping as one of the top three reasons for company failure based on a survey conducted by the institute in 2015 and 2016.
This article examines the importance of record keeping on the growth of family business, what records should be kept and the impact of poor record keeping on family businesses.
Importance of Record Keeping
As a starting point, it is important to record all transactions involving the family business and maintain an archive of source documents issued in respect of such transactions. Source documents for purchases and other expenses can be used to create accounting ledgers and journal entries. Essential documents that should be kept by the family business include incorporation documents, general ledgers, fixed asset schedule, payroll information, financial statements, company's policies, etc.
In addition to tracking business expenses, the family business also needs to keep records of the income of the business in relation to receipts, cash register, petty cash book, invoices, bank statements, etc.
A fundamental rule of record-keeping for family businesses is the separation of records of the family business from records of personal or non-business-related transactions. At the early stage, the founder of the family business may be able to carry out record-keeping functions directly. However, as the business expands, it may be advisable to engage the services of professional firms to ensure the completeness of the records being kept.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.