Record keeping is essential for every business and every transaction. Good record keeping helps with managing costs, tax assessment, legal concerns, improving sales, and planning for future growth.
The business owner should be personally involved in record keeping rather than assigning this role. Keeping accounting books and significant records at home rather than with an accountant keeps you up to date and more aware of your business accounts, and it will additionally save funds that can be further applied to benefit your business in different areas. Note: One should not completely eliminate accounting professionals from businesses; end-of-year tax accounting demands specialized experts. Accounting professionals are dependent on the financial data that you provide, so you should maintain thorough records as the source of the financial information. Analyze the size and scope of your business, and then decide which accounting chores you can handle and which ones need to be assigned to experts.
As a business owner, you should establish a record-keeping practice for personal information, too. For example, when applying for a business loan, a bank may require the financial statements of your business, savings accounts, and other personal accounts tied to your business.
Record keeping begins as soon as you start to refine your business or studio idea. If you’ve started to actively pursue your own business, it is important to do the following:
- Know which expenses are commonly deductible.
- Date all of your entries/records.
- Record all revenue.
- Record all expenses (including insurance and inventory costs).
- File away all of your receipts.
- Record income and expenses during the preparation stages of your business.
- Record daily activities and time spent on other tasks related to your business.
- Record all of your ideas to protect them as your own.
Examples of Expenses to Record
- Mileage to and from the studio
- Books and videos purchased for learning and growing
- Conference, seminar, and workshop fees
- Materials used to develope ware for sale and inventory
- Tools and equipment purchased for the studio
What Healthy Business Records Do
- Help to control and protect the progress of your business
- Estimate tax liability
- Develop financial statements
- Classify the origin of receipts
- Maintain deductible expenses
- Plan tax returns
Record retention is the practice of managing business and personal records over time. Accurate record retention is the most beneficial for your business. A weak system will prevent you from retrieving reports needed to make sound business judgments. An inadequate record-keeping system also poses a security risk. Small business owners should keep consistent and accurate records, and also know which of those records to retain and for how long.
Record retention schedules vary by region. For example, a state may have a different statute of limitation for legal liability (lawsuits). Check with your attorney for legal requirements. Check with your accountant for financial requirements.
Organize record keeping in such a way that it will allow proceeding through the tax year in the precise order. This organization will help simplify retrieval and verification of tax information and form a snapshot of your business that will encourage you to analyze trends and execute changes to make your studio grow and become more profitable.
A small business owner must develop a foundation first and learn the basics of record keeping. A good foundation can lead to a stress-free business environment, aid in the retrieval of information for tax reporting, and provide useful information when evaluating business strategies.
Common Record-Keeping Tools
- As your business grows, expand your record-keeping system to accommodate more records and increasing complexity. For example, consider the paper-based tools described here:
- File Binder: A file binder holds loose records together used for planning and protection. Label binders based on their contents.
- Hanging Folders: Use hanging folders to group several file folders. For example, a hanging folder might be labeled “Tools & Equipment” to contain receipts filed for different types of tools.
- Accordion Folder: This type of folder opens like an accordion on top to reveal compartments, each of which can be labeled and are designed to separate and store documents.
Numerous business owners use a method known as the tickler system for remembering future events and deadlines, such as:
- Quarterly taxes
- License renewals
- Insurance reviews and renewals
- Upcoming bills
A tickler file is a collection of dated file folders organized in a way that allows time-sensitive documents to be filed according to a future date on which each document needs action.
Digital Record Keeping
Most businesses maintain some form of paper-based record keeping, but computer-based systems are standard. Implement computer-based systems as you become more comfortable with digital record keeping so that your records will take up less space and can be transmitted online, saving time.
Cloud storage of digital files is used to store, manage, and process data on the Internet, rather than using a local personal computer. The advantages are:
- Cloud storage can be used as a disaster-proof backup, as normally there are 2 or 3 different backup servers located in different regions around the globe.
- No need to install software upgrades.
- Less likely to lose data because of computer crashes.
Access your financial information from any location that has internet access. Options for free cloud storage in 2019 include:
- Google Drive (www.google.com/drive)
- pCloud (www.pcloud.com)
- Microsoft OneDrive (https://onedrive.live.com/about/en-us)
- Dropbox (www.dropbox.com)
- MediaFire (www.mediafire.com)
The more comfortable you are with computers, software, and the Internet, the more you should explore cloud storage for your business record keeping.
Mamta Gholap received her MBA in finance and is passionate about handbuilding with clay.