Practicing good record keeping can save your small business both money and time. While running your business, you want to have accurate and complete financial records. Now, this doesn’t mean keeping every single little thing! It means keeping what is legally required by law, as well as what is essential for preparing monthly, quarterly, and yearly financial statements.
Regarding taxes, you should keep supporting business documents. According to the IRS’s website, these are some essential items that small business owners should keep:
- Gross Receipts
- Purchases
- Expenses
- Travel, Transportation, Entertainment, and Gift Expenses
- Assets
- Employment Taxes
By having well-kept records, this helps with avoiding costly tax errors—like overpaying or underpaying taxes. It’s also useful for providing necessary information if you are audited by the IRS.
Another important thing to keep in mind with record keeping, you should be able to show how much income your business is generating and project how much it will generate in the future. Having great financial records helps you do this, as your records will be able to indicate details, like what you owe for expenses (rent, utilities, or job materials), and how much cash is pending in accounts receivable.
Using accounting software for your small business record keeping needs, like QuickBooks, is very helpful. However, accounting software requires not just computer and data entry skills, but also accounting knowledge. Hiring a CPA can be a huge asset to your small business, as they can work with you to develop and maintain an accurate record-keeping system that suits your business needs.