If you don’t organize your records from the start, and stay on top of your record keeping chores daily, I can almost guarantee that you will come to grief - probably sooner than later.
Eight Tips CRITICAL to business record keeping success and sanity:
- Never mix business and personal paperwork. For instance, by using one checkbook or credit card for business and personal use.
- Make sure your records can be understood by anyone, not just yourself. I strongly suggest you use one of the widely accepted automated software record keeping systems. My personal recommendation is QuickBooks Pro.
- Always use the memo section of your checks to record the specifics of the expense.
- Record transactions as they occur, or at least on a daily basis. Reconcile bank statements the day you receive them. Retain all bank statements.
- Get help before things get out of control. Your Accountant, or Business Counselor should be able to help, or at least point you in the right direction when help is needed.
- Develop and maintain a good back up system. If you are using computer software back up daily onto disk or jump drive (my preference) and store the disk or drive in a fire resistant cabinet or other safe place. All permanent records of the business like licenses, contracts, organization filing papers, leases, etc. which are paper documents, should be copied or scanned electronically, and stored the same way.
- Unless you have a tax accounting background, plan to have your taxes prepared by an Accountant (at least the first year). Check with the Accountant to make sure you understand what records will be required, and that you will be able to supply them.
- Prepare and carefully review a Profit and Loss Statement and a Balance Sheet monthly. Flaws in your record keeping system (or mistakes) will show up there, and can be corrected in a timely manner before they get overwhelming.
WHAT RECORDS DO I HAVE TO KEEP?
OK, keeping those eight tips in mind, lets get to the nuts & bolts of record keeping. For starters you might ask “what records do I have to keep?” The very simple answer is all records having to do with money flow into and out of your business. Business activities or transactions cause money to flow into - and out of - the business:
Money flowing into the business may be:
- Money from selling goods or services.
- Money from selling business assets.
- Money you (or a partner) have contributed to the business.
- Money from other sources such as borrowed from a bank.
Money flowing out of your business may be:
- Payments for products (inventory) to be re-sold.
- Payments for services or expenses (including salaries).
- Payments to buy or replace business assets.
- Payments to yourself (or partners) in the form of a draw.
You must also keep records for travel, transportation, entertainment and gift Expenses. For additional information on how to prove certain business expenses, refer to IRS Publication 463, "Travel, Entertainment, Gift and Car Expenses.”
Assets are another set of records you must keep. Assets are the property, such as machinery and furniture, that you own and use in your business. You must keep records to verify certain information about your business assets. You need records to complete the annual depreciation and the gain or loss when you sell the assets.
Employment Taxes are another set of records. There are specific employment tax records you must keep. Keep all records of employment for at least four years after resignation or termination. For additional information refer to “Record keeping for Employers” in the irs.gov website.
WHAT IS THE BEST WAY TO KEEP THESE RECORDS?
In a heartbeat my answer is QuickBooks.
Why? My answer to that could be summarized into the following seven points:
- Ease of use. You don’t have to be a Bookkeeper, even I can do it.
- Tremendous reduction in hard copy paper storage.
- Speed. Once you enter products or services and prices into your Chart of Accounts, or a name and address of a customer or vender onto a List, you never have to type it out again. Most entry can be done using your computer mouse, and things like dates and prices are automatic entry unless you change them.
- Hassle free Tax Time. Turn a disc or jump drive over to your Accountant and you’re pretty much done.
- Back-up, retention and storage of records. Keep a years worth of records on a CD-RW disc or a one inch x 3 inch jump drive that fits in your pocket.
- Ease of reconciliation and great financial reports to help you track the bottom line. Click an any figure on a report and it tracks back to the source entries.
- QuickBooks (I’m not sure about related software programs) has a Point of Sale software program that will upload directly into QuickBooks.
If you would like to learn more about QuickBooks, visit my website Http://www.smallbusinessyesyoucan.com and see “My Recommendations - Record Keeping.”
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