Why Poor Record-Keeping Is Silently Killing Ghanaian Businesses

A business may be making sales every day and still be moving steadily towards failure. The shop may be busy, customers may be paying, and money may be entering the bank account. Yet the owner cannot confidently state how much profit the business has made, how much customers owe, how much is due to suppliers, or whether the business can meet its tax obligations.

Having practiced as an accounting consultant and external auditor over the years, this is the reality of many businesses in Ghana. Their challenge is not necessarily a lack of customers or entrepreneurial energy. It is the absence of reliable financial records.

In my previous article, “Understanding the Regulatory Framework for Doing Business,” I observed that poor record-keeping can become a greater threat to a business than competition. This deserves closer attention because records are not merely documents prepared for accountants, auditors or tax authorities. They are the financial memory of a business. Without them, management decisions are based on assumptions rather than accurate financial information.

Sales are not the same as profit

One of the most common misconceptions among business owners is that strong sales automatically mean the business is profitable. They look at the volume of cash coming in and conclude that the business is performing well. However, revenue is only one part of the story.

To determine profit, a business must properly capture the cost of goods or services sold, employee expenses, rent, utilities, commissions, finance costs, taxes, depreciation and other operating costs. A business can therefore record impressive sales while making little profit or even a loss.

Where proper records are absent, owners often withdraw cash for personal use without recording it, pay business expenses from personal accounts, and use business funds for unrelated activities. This makes it difficult to distinguish the financial position of the owner from that of the business. The bank balance then becomes the informal measure of performance, even though a bank balance alone says very little about profitability.

Poor records create avoidable tax exposure

I have managed tax audits for many businesses; in those engagements, one significant challenge has been weak record-keeping which creates significant tax risk. When a business cannot support its declared revenue and expenses with invoices, receipts, contracts, payroll records and bank reconciliations, it becomes difficult to defend its tax position during an audit.

Bank deposits may include transfers between the owner’s accounts, loans, capital introduced, refunds or other non-revenue receipts. If these transactions are not properly identified and documented, they may be mistaken for business income. Similarly, legitimate expenses may be disallowed when the business cannot provide supporting evidence.

This can result in additional assessments, penalties, interest and lengthy engagements with the tax authorities. In many instances, the eventual cost of reconstructing records and resolving disputes is far greater than the cost of maintaining proper books from the beginning. I have encountered businesses that have been struck with tax liabilities far above the net worth of the business.

Proper record-keeping does not enable a business to avoid tax. It enables the business to determine and pay the correct tax, neither less nor more than is lawfully due.

The law requires proper accounting records

For companies registered in Ghana, keeping accounting records is not optional. Section 123 of the Companies Act, 2019 (Act 992) requires a company to keep accounting records that sufficiently explain its transactions and financial position and enable financial statements to be prepared.

This obligation should not be treated as an annual exercise carried out only when returns are due or when an auditor requests information. Records must be maintained throughout the year. Waiting until year-end to search through bank statements, WhatsApp messages and faded receipts is not an accounting system.

A sound system should make it possible to trace each material transaction from its source document to the accounting records and, ultimately, to the financial statements. The first step in developing a robust accounting system for your business is to put together a documented accounting procedures manual or Standard Operating Procedures for accounting. The document should not only be developed but used and adhered to in the daily activities of the accounting function.

Subsequent to the development of an accounting procedures manual, a good accounting software should be used to manage the accounting system of the business.

Access to finance depends on credible information

Many entrepreneurs complain that banks and investors are unwilling to support their businesses. Although access to finance remains a genuine challenge, poor financial information often weakens an otherwise promising application.

Some businesses come to me to prepare audited financial statements, management accounts, and projected cashflow statements only because the bank is asking them to provide such information as part of a loan processing requirement. That should not be the case. The properly managed business should have financial information readily available when needed.

A lender wants to understand revenue trends, profitability, cash flows, existing obligations and the business’s capacity to repay. An investor wants to know what the business owns, what it owes, how funds have been used and whether reported growth is sustainable. These questions cannot be answered convincingly with estimates and verbal assurances.

Businesses that maintain credible records are better positioned to prepare financial statements, projections and management reports. They can demonstrate performance over time and respond promptly to due-diligence requests. Good records therefore do more than satisfy regulators; they improve the business’s credibility and make it easier for external parties to take an informed decision.

Cash leakages remain hidden

Poor records also create an environment in which losses and irregularities can remain undetected. Inventory may disappear, customers may fail to pay, suppliers may be paid twice, unauthorised discounts may be granted, and employees may collect money without accounting for it.

Where no one regularly reconciles the cashbook, bank accounts, receivables, payables and inventory records, these leakages can continue for months and years. The business owner may respond by injecting more capital, unaware that the underlying problem is weak financial control. My team conducted an inventory audit for a business recently; at the end of the audit, we observed that the business had lost millions of cedis attributed to pilferage and improper records keeping.

Proper record-keeping supports internal controls by creating accountability. It helps management identify who initiated, approved, processed and received value from a transaction. It also makes unusual movements easier to detect and investigate.

Growth becomes difficult to manage

A small business may survive for some time through the owner’s memory and direct supervision. As the business expands, however, transaction volumes increase, more employees become involved, new branches may be opened and responsibilities are delegated. Informal systems that once appeared adequate begin to break down.

Without reliable records, management cannot tell which product, service, branch or customer is generating value. Prices may be set without a proper understanding of costs. Credit may be extended to customers who already owe substantial amounts. Purchases may be made without regard to existing stock. Expansion decisions may therefore increase activity without increasing profitability.

Growth without financial visibility can magnify existing weaknesses. A business that does not understand its numbers may become larger but not stronger.

What should business owners do?

Improving financial records does not always require an expensive or complicated system. The starting point is discipline and a process suited to the business. Every business should, at a minimum:

• Separate personal and business money by operating a dedicated business bank account.
• Issue invoices or receipts for sales and retain supporting documents for purchases and expenses.
• Record transactions promptly instead of attempting to reconstruct them several months later.
• Reconcile bank, mobile money and cash balances regularly.
• Maintain updated records of customers who owe the business, amounts owed to suppliers, inventory and payroll obligations.
• Use accounting software appropriate to the size and complexity of the business, with controlled access and regular backups.
• Review basic management reports such as the income statement, statement of financial position, cash-flow reports and receivables ageing at least monthly.
• Engage a competent accountant or adviser before problems arise, not only when a tax audit, loan application or statutory filing is due.

Record-keeping is a strategic investment

Some entrepreneurs see accounting as a cost that can be postponed until the business becomes bigger. In reality, a business needs proper records in order to grow responsibly. Records provide early warning when margins are falling, expenses are increasing, customers are not paying or debt is becoming unsustainable.

They also allow an owner to evaluate managers, plan cash requirements, prepare realistic budgets and decide whether to expand, reduce costs or discontinue an unprofitable activity. The value of accounting therefore lies not only in reporting what has already happened, but in helping the business decide what should happen next.

The competitive environment is difficult enough without a business being weakened by its own lack of information. Entrepreneurs cannot control every movement in the economy, every action of a competitor or every change in regulation. They can, however, build systems that show clearly what is happening within their own businesses.

A business that keeps proper records understands its performance, protects its assets, supports its tax position and earns the confidence of banks, investors and other stakeholders. A business that neglects its records may continue trading for a while, but it is effectively operating in the dark.

Good record-keeping is therefore not paperwork for its own sake. It is one of the foundations of survival, accountability and sustainable growth of any business.

About the author
Samuel Osae Ansah is a Licensed Auditor, Chartered Accountant, Chief Finance Officer (CFO), with over a decade post qualification experience in accounting, taxation, auditing and business advisory. He is passionate about helping businesses achieve growth through sound financial management, regulatory compliance and good corporate governance.