Everyone in business must keep records. Record keeping is not solely about fulfilling regulations or legal requirements. Record keeping is also about understanding your business, to monitor the progress of your business, now and in the future. In addition, good records can increase the likelihood of the success your small business.
Here are 6 Reason Why Small Businesses Should Keep Good Records:
Detail Tracking of Business Income Expenses. As a business owner, you will receive income such as money or property from many sources and business expenses which can range from advertising to utilities and everything in between. It will require you to track a significant amount of information and documentation, to properly identify your customers, sales, inventory and deductible expenses. By keeping track of all business expenses, you can take the largest tax deduction you are entitled to. Without a proper record keeping system, tracking important details of your business may be impossible.
Keep your books up to date. Small business owners need to know where their company stands daily, weekly, monthly, quarterly and annually. Without this knowledge you have no control over your business. Keeping your books up to date and accurate is the best remedy for your business’ financial health. A bookkeeper can help manage your business and keep your finances on track.
Prepare Financial Statements. Small businesses need good records to prepare accurate financial statements. These include income (profit and loss) statement and balance sheets. These statements can help you in dealing with your bank or creditors and help you manage your business. Financial Statements also can convince lenders, crowdfunders, or investors to fund your small business.
Growth. Small businesses often operate with plans to eventually grow. Start by committing time to outlining a business plan for your business to grow and update your plan on a regular basis to address any changes. A business plan is a road map and can help you find more growth opportunities and avoid common mistakes.
Legal Compliance. Numerous federal laws require employers to create and retain various forms of employment records and in some instances, to make filing with governmental agencies. The more employees a company has, the more record-keeping laws it will be obligated under. The business owner is responsible for meeting your monthly, quarterly and annual federal, state, and city tax obligations. Your small business must file timely monthly, quarterly and annual tax returns.
Tax Preparation. You need goods records to prepare your tax returns. These records must support the income, expenses, and credits you report. Generally, these are the same records you use to monitor your business and prepare your financial statements. If the IRS examines any of your tax return, you may be asked to explain the items reported. A complete set of records will speed up the examination.