The Business of Keeping Records

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
  • Invoices
  • Forms 1099-MISC

 Purchases = what you resell to customers, as well as what you buy

  • Canceled checks
  • Credit card receipts and statements
  • Invoices

 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
  • Invoices
  • 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.

Employment taxes

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.

Three Components You Can’t Ignore

Like you, your business is alive. But is it thriving? Are you giving it the fuel it needs to grow?

Many components of business require the time of owners, founders and management. And three critical components stand out—accounting, culture and systems. Sure, it’s possible to make money without these, but it can be extremely difficult to grow or reach goals. Surprisingly, these three components are typically ignored or left to chance. Don’t leave your success to chance.

Accounting, culture and systems are equally important, although one might take priority over the other two, depending on your business and its current development stage. But no matter where you’re at, it’s important to be aware of how these three components contribute to your progress.

Accounting

Accounting is usually most ignored by small and beginning businesses. However, we’ve seen many well established, profitable companies that don’t have or can’t produce reliable financials on demand. Without that, management loses all ability to gain valuable information that’s provided in financial statements.

So, why is accounting often ignored? While each business likely has its own, unique reasons, there are some common themes we see. Often times, small businesses just can’t afford to have in house accounting people, so these functions get pushed to the back burner. Another common theme we see stems from lack of understanding. Accounting can be tricky, and when businesses don’t understand their numbers, they often times just ignore them and hope for the best. This can lead to some serious financial issues that, if ignored, can take a business downhill fast.

Culture

Culture is your company’s personality. It’s how your staff interacts with each other and customers. If you don’t identify and define your culture, you can stunt your business’s efforts to grow. For example, one business owner almost completely replaced her staff. Her former staff wanted to keep the “mom and pop” feel. In her long-range planning, which her former staff was part of, they identified strategies for growing the business, complete with revenue targets. It wasn’t until the owner began taking the necessary action to achieve the growth did she realize her staff wasn’t actually on board. Her views of change and growth for the company differed from her staff, which created a cultural nightmare.

It is imperative for everyone to believe and share the company culture. Maybe this means creating policies and procedures that directly align with your company culture, or hosting meetings and events to help your staff understand and adapt to the company culture. However you implement it, culture is too important to ignore – after all, your people are at the heart of your business.

Systems

Proper systems are more than writing down the process. The systems should be both quantifiable and qualified. Quantifiable means it should be set up to measure if things are being done the same way every time, and if the desired results are being achieved. A qualified system is one that’s performed the same way and the way it was written, even if you or management is not present. It should be pointed out that it’s not necessary to systematize your entire business. Focus on areas that create consistent and reoccurring frustrations, are important to the operation and growth of the business and where consistent results are needed.

To sum it all up, all components of your business are important. Your accounting needs, culture and systems and processes are three components that stand out because unfortunately, they are often ignored. By devoting more time, effort and resources into these, you can help your business stay on track for growth and continued success.

*Shameless plug: These three components may seem confusing, scary and downright challenging, but it doesn’t have to be that way. We have talented professionals who dedicate their time and skills to helping your business succeed. If you need help, let us know!