As you run your business, you’ll begin to acquire a large amount of information related to your finances. These could be receipts, canceled checks, invoices, etc. As this occurs, you may begin to wonder what’s worth saving and what’s okay to toss. You know this information is important to have, but is it all necessary to keep? What do you really need to track?
Step One: It all starts with a system.
An accounting system is a critical component of running your business. It helps you clearly track the financial state of your business and keeps all those receipts in one place.
here are several different types of accounting systems to choose from. While all systems have their pros and cons, there’s no right or wrong way, we highly recommend cloud-based accounting software, which will give you access to your financial data from just about anywhere, on any device.
Here are a few things you need to watch for when selecting a system:
The key thing here is to understand your needs prior to purchasing so you get the right solution.
Not sure what to choose? We can help.
Step Two: Understand the importance of supporting documentation.
There are a few types of records you’ll need to know about. These documents will give you the information you need for your accounting system.
Gross receipts: income you receive from your business. These include:
Purchases: what you resell to customers, as well as what you buy. Some examples of documentation are:
Expenses: costs you incur (other than purchases). These include records such as:
As a note, these expenses need to show the amount you paid and the description of what it was.
Reminder: tax reform has had an impact on some types of expenses, including travel, entertainment and more. Learn more about the impact here.
Assets: property you own and use for your business. The following details are particularly important:
Step Three: Track your documentation.
All the above should be included in your accounting system. This will allow you to report accurate revenue, keep track of deductible expenses, calculate gain or loss on sold property and more.
You can find most of the items listed above on purchase or sales invoices, real estate closing statements and even cancelled checks that identify the payee, amount and proof of funds transferred.
Once these items are part of your accounting system, you’ll be able to easily access them. In the meantime, make sure you are keeping track of the above, as well as tax records. At a minimum, we recommend you keep record of employment documentation for up to four years.
Step Four: Maintain good records.
These steps only work if you continue to maintain accurate records that are up-to-date. So, continue to pull the necessary documentation and include it in your accounting system. Only by staying up-to-date will you be able to make strong financial decisions.
The moral of the story.
Documentation is incredibly important when it comes to running your business. If you don’t have proper documentation, you could find yourself not in compliance, which could lead to an audit. Tax time will also be incredibly burdensome, as you will waste time searching for the documents you need when you could be using that time to run your business. It could also cost your business a lot of money if you have not been filing correctly. Finally, your banks won’t lend you money without accurate records.