As a small business owner, it helps you to keep organized records, particularly in regard to your finances. You need to keep track of all of the money coming in and where it goes out to in order to identify problems and areas for potential growth. If you incorporated, then it is even more important that you maintain accurate records of your required corporate formalities, like annual board and shareholder meetings. Also, worry over an audit by the Internal Revenue Service (IRS) or your state’s revenue agency is motivation enough to make sure your books are clean and up to date. When you own and operate a small business and are responsible for maintaining your financial and other business records, here are some tips to help you out:
Purchase business software
No matter what type of business you have, you want to sell your products or services, obtain new customers, and keep loyal customers coming back. All of this can be better managed by acquiring business software. There are all types of business software platforms available. It simply takes some time and effort to determine which program is most appropriate for your industry, business structure, current needs, and future goals.
Purchase accounting software
Each year you need to file your business taxes, which means every year, you must be ready to provide proof of your income and expenses to an accountant—or be brave enough to file your business taxes yourself. The best way to be prepared for tax season is to invest in accounting software. This software may or may not be bundled with or coordinate with your business software. Learn how to use the software properly and thoroughly, and then make sure you keep up with inputting information into it. A good accounting program also can offer you generic or custom reports to keep track of your business’s cash flow and other financial matters.
Buying one or more software programs may seem like an unnecessary expense. However, easily maintaining your business and financial records is priceless. There are many cost-efficient platforms for small businesses. Also, going paperless means you can rest assured knowing you have everything saved electronically, and it can make creating backup copies of documents much easier.
Keep all source documents
When you input financial information into your software, the figures come from somewhere: the source documents. This may include receipts, cash register tapes, check stubs, canceled checks, financial statements issued by your bank or credit card processor, payroll records, tax filings and more. Keep your source documents so you can prove your income and expenses in the future. The IRS also provides information on the types of records you should keep.
You also want a backup of the hard copy source document in case there is ever a problem, such as a fire or flood. You should scan each source document to have a digital record. If you don't have a scanner, you can create a digital file from your mobile device with an application that uses your phone camera to turn documents into PDFs or JPEGs. Apps like these are easily accessible, run seamlessly, and are relatively cheap, if not free.
However, you must have a comprehensive digital storage plan in place. Saving the copy on a computer at work will not help you if you are in a disaster. The best digital storage solution options are those that are easily accessible for you and your business partners at all times, such as the Cloud or Dropbox. Figure out the best digital storage solution for your needs early on in order to save yourself trouble down the road.
You do not need to keep records forever, particularly paper copies that take up space and gather dust. The IRS suggests keeping records for three years unless certain circumstances apply.
Have a filing system
As a small business, you may “go green” as much as you can. It can be convenient to avoid paper. However, you are bound to have hard copies of certain records, and for these, you should have an organized filing system. Make sure you have a clean, safe, and secure place to put your paper records, such as a locked filing cabinet in your office or home. Also, and this should go without saying, this system should guarantee that you are able to thoroughly review your records and file your business taxes on time.
Create a corporate binder
If your business is incorporated, consider purchasing a simple three-ring binder and sheet protectors to save all of your paperwork in. Like source documents, everything should be scanned and saved digitally. However, you benefit from having all of your incorporation paperwork in once place. You should keep any licenses or permits the business has acquired that it needs to operate. You also can add to this binder over time with the agendas and minutes of your annual or special meetings.
Create a contract binder
As a business, you may have contracts and leases with a variety of other businesses and individuals. Consider putting together a separate binder for these agreements. You should always keep all original copies of executed contracts (as well as a digitally saved copy) in case of a future dispute.
Keep personnel records
Once you hire someone, you need to begin keeping personnel, payroll, and employment tax records. This will include employee’s personal identifying information, hiring documentation, performance evaluation documentation, employee work hour records, total wages paid, W2s, and other tax withholding records. If you are new to employing workers, check out the IRS’ advice on which employment records to maintain.
Following these tips will keep you organized and on top of all the regulations and deadlines that can run new business owners afoul of the law. Record keeping is essential for the functionality of your business. If you need further guidance on these points, or if you're facing trouble with any facet of your operations, it is in your best interest to consult with an experienced business attorney sooner rather than later.