Don't let bonbons upstage bookkeeping. Lining up a good product and fancy packaging are fine and dandy, but they count for little if you don't keep tabs on how business fares

Once upon a time children flocked to Mr. Smith's candy shop. Mr. Smith liked to see kids' faces light up when they walked through the door. He liked choosing new treats for his customers' Christmases and Easters. But he didn't like saving receipts.

He was satisfied just to throw them in the direction of his desk and try to make sense of them once a year. He abhorred paper work.

Then one day he noticed it was getting difficult to pay his bills. First the gumdrop suppliers, then the peppermint people, stopped sending shipments. Smith was worried.

He asked his brother-in-law, an accountant, to set up a record-keeping system.

Like this fictional candy-store owner, you might feel it's a lot more fun to produce a brightly beribboned product than to total the sales for the month and see how you did financially. But keeping accurate, up-to-date records -- and knowing which information is important -- can do more for your company's profits than hiring a whole slew of salesmen.

Records are your tool for controlling and cutting costs, for predicting how much profit you will make next month, and for finding and concentrating on the product line that can bring you the highest profit.

Keeping track of the aging of your receivable accounts, for instance, can help you spot late-payment problems immediately, uncover delayed or partial shipments, and collect the delinquent payments before they become uncollectible.

What transactions do you need -- what are the building blocks -- to acquire the kinds of records that can help your business be a success?

Record all cash or noncash receipts or payments, says John McCafferty, partner in charge of the privately owned and emerging business group at Ernst & Whinney in Boston.

The simplest way to make set up a bookkeeping system, says Maurice Chadis, a Boston Service Corps of Retired Executives (SCORE) volunteer, is to get a ``Dome'' or other bookkeeping book at the stationery store.

You will also need a checkbook for the business, he adds. Having a business checkbook can make keeping records easier and facilitate the separation of your private finances from your business finances.

If you write more than 20 checks a month, it could be worth getting a ``one write'' bookkeeping system. Safeguard Business Systems Inc., in Fort Washington, Pa., has 50 percent of the one-write bookkeeping system market. With this system, when the small-business owner writes out checks, carbon strips on the back of the check transfer the information to his journal ledger card, notes Christina Johnson, director of manual systems (as opposed to computer systems) for Safeguard.

One-write systems are suggested for businesses with 50 or fewer employees, depending on the number of transactions, she says.

Or, to make up a simple sales journal, you can simply write on a sheet of notebook paper the date of the sale, whom you received payment from, and how much you got. Divide the columns into taxable and nontaxable sales, and sales taxes.

Then, depending upon whether you offer your own credit, you may want to add another column showing uncollected charges.

Cash payments are similar. Record the name and date of the payment and write the amount in the column under the correct category of expense (repairs, postage, advertising).

One of the most important tools you can build is the cash-flow projection, or forecast for the month.

Simply add anticipated receipts to your cash on hand (or anything that can be converted easily to cash). Subtract all expenses you will actually have to pay out, and what you have left is your cash position. Do this in pencil for each month of the coming year, then record the actual figures next to the projections. Each month you will get better and better at re-forecasting the remaining future months.

Income statements and balance sheets should be figured monthly on about the 5th of the following month.

Income statements, also called profit-and-loss statements, can tell you if you how well you did. From total sales (from your sales journal), list and subtract the direct cost of goods or services sold. The result is your gross margin, or approximate profit, on every product sold (not counting overhead, or fixed expenses).

Subtract the month's payments (totaled from your expenses journal) from the gross margin. The result, if positive, is your profit. If negative, it is your loss.

The balance sheet tells you how much debt you carry, compared with your assets. To make it up, subtract your debts from your assets.

Ask your bank, the Small Business Administration, or your chamber of commerce which state and federal government agencies to get in touch with. You may need to estimate or report income or sales taxes quarterly or monthly.

The federal government also requires that you list all payments to your employees under their social security numbers and withhold social security taxes from their pay.

It may be easier for the first several years to hire independent contractors (non-employees) instead of employees. Each contractor prepays his own taxes, although you are still required to report your payment to the contractor.

Don't hesitate to ask an accountant to help you set up and teach you your bookkeeping system and do your tax returns, says Mr. Chadis -- especially if you don't have an accountant for a brother-in-law.

Eighth in a series. Next: Leasing vs. buying equipment.