The Importance of Financial Record Keeping: 5 Practical Steps for MSME Entrepreneurs!

Managing finances through record-keeping is crucial for Micro, Small, and Medium Enterprises (MSMEs) or other culinary businesses. Many new MSME entrepreneurs need to pay more attention to the significance of tracking money flow in and out of their business. This habit must change if you want your MSME to reach the next level.

Make financial record keeping a vital element of your MSME, even if it seems simple; it can have a big impact. This article will cover the basics of financial record-keeping for MSMEs.

What is Financial Record Keeping? 

According to forbes.com, financial record keeping for MSMEs is the method of practicing, organizing, categorizing, and maintaining financial reports for an MSME. This includes transaction reports, financial statements, and financial documentation to manage all aspects of finance and ensure the stability of the MSME.

Typically, this practice uses simple methods, such as keeping a notebook or using software available on your devices. If you're still unsure, here are some straightforward ways to implement financial record-keeping:

5 Basic Steps for Financial Record Keeping in MSMEs

Source: Freepik

1. Create Expense Records 

Keeping track of expenses is the first step in running a business. This record should be separate from other financial records. Expense records should include operational costs, raw material purchases, and employee salaries. Taxes that need to be paid should also be included in the expense table. This way, your MSME can track how much capital has been spent, allowing you to determine your next strategy.

2. Income Records

Income records should be separate from expense records. This record is used to document the company’s income, such as daily sales of products or services and received payments on accounts receivable. You should regularly record income to assess your profit margins.

Also Read: Quick Check! Profitable MSME Business Trends in 2024

3. Create a Cash Book 

In maintaining a cash book, there are three types:

- Daily Cash Book: Record all daily transactions. This helps you understand daily cash flow and ensures no transactions are missed.

- Weekly Cash Book: A compilation of daily cash records into a report. With a weekly cash book, you can observe spending and income patterns over the week.

- Monthly Cash Book: Contains weekly cash reports. This monthly report provides an overview of your MSME's financial condition over the month.

4. Keep Inventory Records

Regularly track the flow of goods in and out. Sales figures should align with the quantity of goods available. If sales are high, the inflow and outflow of goods should also be high, and vice versa. Keeping inventory records also helps monitor stock levels and reduces the risk of fraud from suppliers or employees. 

Additionally, you can use MSME-scale cash register apps like ESB POSLite, which offer automated inventory management features and detailed reporting to help reduce operational costs by 30%.

5. Record All MSME Inventory

Keeping inventory records is essential for managing your MSME's assets. The goal is to provide a clear picture of your inventory and help plan the right time for asset or inventory replacement.

So, those are the 5 basic steps for financial record keeping in MSMEs. If you implement these practices, you will become disciplined and consistent in managing your MSME. Financial record keeping is a vital tool for planning your finances, enabling you to set more proportionate targets and achieve them systematically and clearly.