Recordkeeping – especially good recordkeeping – can be a burden on your time, resources, and patience. But as a business owner, it needs to be one of your highest priorities. When you consistently maintain good records, you’re investing in your business’s well-being and setting it up for success.
Quality recordkeeping will serve your business in more ways than you may think.
Recordkeeping helps you stay compliant with the law.
Your home state, and any others in which you operate, will ask you to keep adequate records in return for the privilege of doing business in their state. Depending on the jurisdiction, they may ask you to provide asset balances, meeting minutes, sales reports, employment records, vehicle logs, inventory information, signed contracts and proof of tax filings. Your bookkeeper and your CPA can help you prepare these items when the time comes, but the ultimate burden will fall to you.
Recordkeeping helps you file your taxes.
Keep your records updated as tax season approaches, yes, but make sure that your records are detailed. Your CPA will need both the face of your financials and the line item detail before they can report your information in line with IRS standards. The taxing authorities themselves may also ask for your financial statement detail. If you are audited by the IRS or your state’s Department of Revenue (as many new businesses are), you will be expected to prove that your expenses were deductible and that your income was not understated. Having nicely presented balance sheets and income statements are great, but without the detail behind the numbers, they will be much less useful.
Recordkeeping helps you monitor the health of your business.
Don’t trust your gut, at least not when your business is dependent on it. The only way you can know for certain that your business is doing well is if you have the numbers to prove it. If your books are accurate and up-to-date, you can run reports that show you how your business is progressing. You can compare sales month-to-month to see if you’re growing; you can browse through your register to see if any of your expenses are getting out of hand; and with the help of a good accounting software, you can compare your numbers to benchmarks in your industry. For these reports to be accurate, your records must be well-kept, of course, but they must also be current.
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Recordkeeping helps you acquire funding.
Banks, lenders, and investors will not provide funding without performing their due diligence. They will ask for proof that your business is successful and stable, and they will want to see that you can competently manage an influx of cash. Most financers will require three to five years’ worth of professionally-reviewed or audited financial statements. If you keep good records as you go along, it will be easy to produce the documents that they require. If you’re able to receive your funding quickly, you will have the best chance at outpacing your competitors.
Recordkeeping helps you utilize your time more effectively.
Don’t waste your time in the trenches. If you are furiously entering four months’ worth of expenses into your accounting software the night before you pitch your business to a new investor, are you going to be prepared for your meeting? And as your business’s leader, is data entry the best use of your time? Keeping on top of your books is key. It may sound counterintuitive to spend a little bit of time each day on maintaining your records, but those small steps will pay off when you need them the most. If you want to further improve your efficiency, hire an accountant to take on the day-to-day bookkeeping tasks. You will feel confident that your books are current, and you can focus instead on expanding your business.
You Get Out What You Put In
The amount of effort you put into recordkeeping will directly correlate with the output that you generate. By investing upfront in maintaining high-quality books, your business will run smoothly in the background, and you can focus on the job you set out to do – run a business.
If you’ve recently started a business or have plans to get one off the ground soon, contact our CPAs today. And if you need help with recordkeeping, our bookkeepers have many years of experience. We are here to help you succeed.
To see the first of our five tips, check out our post on registering your business.