05 Jan Critical to an enhanced Business Record-Keeping system: Everything you should consider
Your system should always give you accurate and organized information. This allows you to view how your business is doing and take action accordingly. There are some basic rules to keep financial record-keeping systems on their A-game. Let’s take a look at all you need to know.
As a simple rule, if it isn’t there, it doesn’t exist. You must develop the habit of capturing everything as you begin your business journey. Once this becomes a habit, it will happen automatically.
This may sound simple, but it is in fact the most difficult and significant step in the process. You should keep track of every dollar you spend on your business and every profit you make through sales. One common mistake entrepreneurs make is to mix personal and business accounts. When you pay for business expenses with your personal account, your record suffers. It’s best to keep both of them separate.
As you capture information, be sure to collect the description of the item, amount, date, and client information.
Spend an hour or two biweekly to go through all the information you have collected. Before you formally record it, you must ensure it’s error-free.
The item’s description and the client’s details will help with cross-checking when you record information. This validates your transactions, and you can move forward.
Record to Save
Everything you have so far must be delivered to the bookkeeper, or you may record it yourself. This means you are putting your financial information into a usable form.
For recording, you can collect the information in a spreadsheet or financial software. It would be ideal to use online software that allows several users to access this. Even if you employ someone else to keep the record, you may always check and see the progress.
Once you begin recording your financial information each month, you must have four copies:
- A balance sheet
- An income statement
- An accounts receivable aging report
- An accounts payable report
Each month, you must submit a brief comparative analysis and report in addition to these four copies. Pay attention to the information within these reports to keep an eye on your business’s performance.
Take Action (if required)
If you see any fluctuations or uncalled-for changes, you might need to look into them.
The easier way to keep an eye on things is to create trigger points where information will compel you to take action. If your liabilities are increasing each month for the past three months, your expenses are most likely to increase as well. You may need to cut back on your spending. Sometimes expenses increase along with sales. If you notice this in your income statement and cut down your expenses, your profits would be higher next month.
Slow payers are another factor to consider. If the debt has gone unpaid for a long time, it’s unlikely you’ll ever receive it. Set up a collections system to ensure you’re getting paid promptly.
Record for Tax Purpose
This is a significant reason to maintain your record impeccably. If your record is maintained over time, tax preparation becomes easier. It also assists in providing proof in case you are audited by your state, the IRS, or any taxing authority. The IRS has specific requirements as to how long you must keep business records for your taxes.
Even if you’re unfamiliar with record-keeping tactics, you should be able to set one up to keep things running. It’s fairly easy as long as you remain consistent. The challenging bit is capturing information, after which you’ll have everything else under control.
Minimizing unnecessary information and keeping data that has value will be beneficial to your business. A well-organized financial system should keep your company going strong for many years.