Thursday, June 16, 2011

Small Business Record Keeping 101

I've recently co-hosted a couple seminars with Lori from On Target Bookkeeping to help small business owners streamline their accounting process and hopefully save them some time crunching numbers. The seminars primarliy focus on using QuickBooks to accomplish this.

As a primer to the QuickBooks tutorial, I introduce some basic record keeping tips and resources, so I thought it would be a good idea to re-post that info here.

Why Keep Business Records?

  • Is the business making money? To me this should seal the deal - how will you know if you're making money without any data?

  • Who is buying from us or owes us money? (customer info) This type of data can be used for marketing, cross selling or simply to keep track of accounts receivable.

  • Who are we paying? (vendor info)

  • Financial statement preparation - transactional data can be compiled into easy to read financial statements that give management (or third parties in the case of financing) an idea of the health of the business.

  • Tax compliance - income, sales, payroll, etc.

  • Substantiation for items reported on tax returns (no records = no tax deduction = lost money)

What Records Should Be Kept?

  • Gross Receipts - deposit slips, invoices, credit card and cash register reports (if applicable)

  • Purchases for Resale - vendor invoices, purchase orders, cancelled checks, credit card statements

  • Expenses - cancelled checks, credit card statements, receipts, expense reports

  • Assets - when/how acquired, purchase price, subsequent improvements, depreciation schedules

  • Travel/transportation, entertainment and meals have special requirements - see IRS Publication 463.

  • Employment related expenses also need special care - see IRS Publication 15, Circular E for examples.

How Should Business Records Be Kept?

  • Can be as simple as a business checkbook or as complex as a large, multi-user computerized accounting system, depending on the business size and complexity.

  • Technology often allows for automation of routine tasks.

  • Find a system that works and use it - even the most complex system will fail if the data is incomplete.

  • Bottom line: More time spent keeping records = less time spent working on your business

For more information also see IRS Publication 583 - Starting a Business and Keeping Records.

What type of record keeping system do you use? How is it working? What would you change if you could?