Business Management: The Basics And Importance Of Proper Record-Keeping

Gearing up to become a successful business owner also comes with its set of responsibilities and duties that one must comply with to achieve the big dream everybody desires. Among those things, effective record-keeping just may be one of the most important of them all. It is essential for you to keep accurate and up-to-date financial information and records.

It is one way to easily tell the financial standing of your company, from determining items that work and sell to identifying possible setbacks that you may want to change. Moreover, good record-keeping does not only help you monitor the success or failure of your business, but it also serves as your guide in making the next of the many financial decisions a business owner must make.

For smaller business owners, some probably rely on an outside accountant to deal with your taxes and manage your other financial records. Although it can be a good first step for your accounting needs, it is also best that you or someone within your firm take on the job of keeping and managing your financial state records. By doing the bookkeeping activities yourself, however tedious of a process it may seem, will not only minimize your costs of paying an external accountant, but it will also give you more knowledge and control of everything going on in your business financially.

For starters, find a safe and secure space to keep business files, like paid bills, canceled checks, and other documents in an orderly manner. You may make use of manila folders, filing boxes, or an accordion file separated into recognizable categories, i.e “car”, “utilities”, “entertainment” and so on. Organizing your receipts properly will save you any hassle when tax time comes around. This explains why finding the best record-keeping system that works for you is just as important.

Criteria to a Good Record-Keeping System

An effective record-keeping system offers many benefits that may help your business, including:

• It allows you to easily access any information about your business, specifically regarding
• its financial history
• It will also help you substantiate your financial claims in case the taxman questions your tax statements. Showing the taxman that you indeed have a solid record-keeping system, you can easily prove that your documents are complete and accurate
• Helps you track and prepare your financial statements
• Enables you to monitor your business performance on a regular note
• Allows you to determine threats, opportunities, and weaknesses in your business you can act upon immediately
• Fulfill your record-keeping obligations required and provided by particular government tax agencies

Your business records management should meet the following criteria:

• Your record-keeping system should fit with the nature and size of your business
• It should be simple, logical, and easy
• It should be detailed and precise
• It should be easy to understand and follow
• It should be thorough and complete
• Your record-keeping should be integrated into your daily business schedule

What Business Records to Keep

Record keeping is not something to be taken lightly. A simply appropriate record-keeping system for your business might include one of any or all of the following:

Check register – having a separate bank account for your business is recommended. After receiving your bank statements every month, make sure to prepare bank reconciliation to aid you in balancing your checkbooks.

Summary of receipts of gross income – preferably totaled daily, weekly, or monthly. Always keep a record of the source of the money received, including notes and important details about the origin

Summary listings of expenses monthly, including:

• Asset purchase listing (equipment, vehicles, real estate used in the franchise)
• Duplicate deposit slips = keep for 3 years
• Audit reports of accounts = keep permanently
• Bank statements = keep for 7 years
• Canceled checks = typically for 7 years (except for property purchase, state and federal income taxes, special contracts, and anything else where you need to keep the canceled checks indefinitely)
• Contracts and leases = if expired, keep for at least 7 years; but keep the records indefinitely if the contracts and leases are still in effect
• Employee compensation and benefit plan records (if you have paid workers) = 7 years
• Expense distribution schedules and expense analyses = 3 years
• Financial statements = keep permanently

Disbursement records showing payments of bills. This could be a separate journal where you take down all the transactions in which you paid out cash or checks.

• General and private ledgers = keep permanently
• Gross receipts such as receipt books, cash register tapes, credit card charge slip, receipt books = keep for 7 years
• Insurance records, including claims and policies = keep permanently
• Invoices to customers and from vendors = keep for 7 years
• Legal and Important Correspondences = keep permanently
• Mortgages and Bills of Sale = keep permanently
• Trademark registration and records = keep permanently

4. Office supply expenses – keep for 3 years

Besides the costs of maintaining your home office, you can also deduct the expenses used to cover your office supplies and furnishings. Have you got yourself a new iMac, printer, and desk to help run your office needs more efficiently? That’s deductible. Just always remember to keep your receipts within access. Check out Keap’s Lifecycle Marketing Assessment to determine where your business stands among the industry’s top performers.

5.Vehicle and mileage expenses – keep for 3 years

In the case that you are operating your business from home, the use of your personal vehicle from time to time for business reasons can be deducted. This is mostly referred to as a “mixed-use asset.”

Whether you’re meeting with a possible investor at a restaurant or picking up stuff from your local supply shop, it’s essential to record those occasional trips. Monitor the distance you’ve traveled using a notebook in your car or download one of those free mileage tracking apps available.

You should also keep bills for routine vehicle maintenance such as oil changes, tire rotations, or other major automobile repairs. If anytime possible, always ask for itemized receipts that break down exactly what services and parts were charged.

6.Advertising expenses – keep for 3 years

Another great thing about your efforts in brand marketing and advertising is that they also count as deductible expenses. If you’re paying a monthly fee for CRM and marketing automation, for instance, you can deduct that. If you’re paying someone to manage your AdWords, that’s deductible too. You could also deduct the costs of operating your own PPC ads. Almost all digital advertising receipts give you the convenience of digital eReceipts to keep.

eReceipts are extremely easy to keep track of. Simply make room for a “Receipt” folder in your email program, and drag and drop them in there as soon as you receive them. It is essential to note that eReceipts and other digital forms of receipts have always been accepted by the IRS since 1997.

7.Tax returns – keep for at least 3 years

Your business accountant may usually choose to reference last year’s return for this year’s filing. The IRS could also ask for them during any possible audits. Many tax services and software available today give you the option to download a PDF of your returns statements so you can keep them digitally. As I’ve mentioned above, always take advantage of going digital anywhere you can.

Conclusion
While this list may have missed some other considerable aspects, it should be enough for you to have an idea and give you an absolute overview of what you should start filing and what you shouldn’t. If you’re looking for a comprehensive list, you can always proceed to the source itself—with the IRS.

There are many available and useful documents on their website that details recordkeeping that may help you and your business. I’d also like to remind you that it’s never, ever a mistake to hire yourself an accountant.

Their job is to know the updated tax codes and provide you the particular accounting services to ensure that your business stays compliant. Yes, TurboTax Business is an awesome tool as well, but it never hurts to have a professional look at your business filing before you submit. Please be guided that this article is not intended to replace any legal or professional tax advice.

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