Sunday, June 24, 2012

Small Business Accounting - How to Keep Good Business Records

Are you tired of scrambling at the last minute to get your financial records to your CPA? Or are you tired of wasting time trying to find an important invoice, or receipt? Or are you just fed up with being fined by the IRS, Worker's Comp, the State Employment or other agencies because you don't have your papers in order?

Then it is time you got organized.

Now I know that finding financial paperwork can be difficult, especially if you don't have a good system in place.

Or if you have the wrong system, you make it worst, by making it really hard for anyone in the business to locate any of your important papers.

Well, here is a system you can use that will help you stay organized, so that you and your team can find your important financial paperwork in a jiffy - or when you really need them.

1. File paid bills, canceled checks and/or bank statements, and other business documents where you can easily find them. Some people use manila folders or an accordion file divided into types of expenses, i.e. "car', "utilities", "entertainment", and so on.

2. At a minimum, stuff receipts in the proper folders throughout the year and total them up at tax time. Staple the adding machine tape to each folder or stack of receipts. If this works, good for you!

3. An adequate record-keeping system for a small business typically includes:

- Check register - preferably from a separate bank account for your business.

- Summary of receipts of gross income - totaled either daily, weekly, or monthly.

- Monthly summary listing of expenses.

- Disbursements record (check register or actual expense journal) showing payments of bills.

- Asset purchase listing (equipment, vehicles, real estate used in business), and employee compensation records (if you have workers).

4. Every time you spend money in the business (or once a week or month), note in your records the following:

- A brief description of the business purpose of the transaction (office rent, new stapler, gas, etc.).

- The amount.

- The date, and

- Whom you paid (Chevron, Kinko's).

5. Keep all business records for at least six years, then make sure to properly destroy any sensitive information before disposal. You may elect to keep records longer, but the minimum required by the IRS is 6 years.

Now, this is a minimal system for a small business, especially in start-up phase. As the business grows, it will need to migrate to a more structured accounting system to track their financial records.