As a business owner, your financial information is incredibly important and necessary to help you run your business. But how do you know what to track?
It all starts with a system. You need to have an accounting system that will clearly track the financial state of your business. There are lots of different types of accounting systems (we have a few recommendations) but ultimately, you need something that will summarize your business transactions, gross income, deductions and expenses.
Supporting documentation. In order to get the information you need for your accounting system, you need to have the records or supporting documentation. These types of records include:
Gross receipts = income you receive from your business
- Cash register tape
- Deposit information
- Receipt books
- Forms 1099-MISC
Purchases = what you resell to customers, as well as what you buy
- Canceled checks
- Credit card receipts and statements
Expenses = costs you incur (other than purchases)
These need to show the amount you paid as well as a description of what it was.
- Account statements
- Credit card receipts or statements
- Petty cash slips
As a note, if you deduct travel, entertainment, gift or transportation expenses, you have to prove certain elements of the expenses. For more information on how and what to do, go here.
Assets = property you own and use for your business
- When and how you obtained the assets
- Purchase price for each
- Cost of improvements
- Documentation of deductions taken, including: 179D, depreciation, casualty losses
- Selling price
- How the asset was used
- Expense of sale
So where do you find all of this information? Often you can find it on purchase or sales invoices, real estate closing statements and even canceled checks that identify the payee, amount and proof of funds transferred.
There are lots of different tax records you need to keep. At a minimum, you need to keep record of employment for four years.
Why you need to worry about it.
For starters, accurate books help you make financial decisions about your business. But there’s even more benefits to ensuring you have good records.
- Tax time isn’t fun when you don’t have good records. Your books allow you to report accurate revenue, keep track of deductible expenses, calculate gain or loss on sold property and various other items you’ll need for your tax return.
- Without solid financial information, your bank won’t be able to make lending decisions for your business.
For more tips and tricks on why you need to keep good records, check out this blog.
The moral of the story
Documentation is important when it comes to running your business. It’s necessary to ensure you’re in compliance, as well as gives you the information you need to ensure you have the right financial information.