Behind every successful small business story there’s a lot of hard work and administrative effort. If, however, you want your business to really flourish your brilliant ideas are only part of the equation. You first need to be sure your company’s administrative foundation is built solid from the ground up.
A cornerstone you should lay when building your business foundation is great record keeping. While this may not be the most glamorous aspect of running a successful business, it is nonetheless a prerequisite to consistently good results.
What are the advantages of good record keeping?
Accurate and consistent records help you keep track of your business progress. Good records accurately show whether your sales are up or down, which clients are spending and which aren’t and whether any changes are needed. If your records are inadequate you are more likely to make unreliable business plans leading to costly mistakes.
Good records are also fundamental to the preparation of your business financial statements, something on which every successful business relies. Financial statements are necessary when dealing with banks, vendors, investors and the government.
Accurate business records are your key tool in identifying your source of incoming money or assets, otherwise known as cash flow planning. Your business receives money and property from a variety of sources on a regular basis (cash from customers, a promise to pay on your sales invoice, etc.). Accurate records here also will keep you from mistakenly including incoming money on your tax return that may not be taxable (for example, loan proceeds).
There is the question of your tax records as well. Great record keeping is a crucial part of any business’ tax return. Your records, according to the law, need to reflect your income, expenditures and credits that you report on your tax returns. Failure to keep good records puts you and your business at substantial tax risk.
Keeping good records throughout the tax year, and not just scrambling to assemble documents when your return is due, also means that you will have accurate figures available for official inspection at all times, which is always a possibility as authorities tighten up their approach to audits and financial reporting.
Having established the various advantages of good record keeping, your attention should turn to the type of records you should keep for your business.
Your business should maintain a proper accounting of all your business activities under a method called generally accepted accounting principles, otherwise known as double-entry accounting. You can get help setting up and maintaining this from your CPA. You may also sometimes here this described as a general ledger, ledgers, etc.
Beyond the basic general ledger, there is no set method of record keeping that a business should adopt. Instead, it’s a question of choosing your manner of record keeping based on the type of business you run, and its requirements.
The basic rule is that any records system is acceptable as long as it clearly demonstrates your business’ results of operations, assets, liabilities and equity.
Record keeping may seem like an unexciting prospect, but do it properly and you will save your business a lot of time and money later on. The team at Scholl & Company can help you design the best record keeping or accounting system for your business or give you an unbiased expert review of your existing system. In either case, we can help you create an accounting system that will allow your business to rocket to the next level.
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