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?