Updated: Jan 25
One of the questions that you will face upon starting your business is: How Do I Keep Records? No matter how large or small a business, record keeping is a critical component for success. Record keeping is composed of several elements, two of which we’ll cover here: Bookkeeping and Filing. To that end, here are six keys to keeping records.
1. Business vs. Personal
If you pay taxes (and by that, I mean everyone), this is one of the biggest violations the IRS or your state of choice looks for in auditing business records. How do you keep your records separate? Simply, open a separate checking account for your business. Only use this account to pay business expenses and deposit business revenue. You only take money out of the business through compensation or draws (the topic of article #9 in this series) and don’t ever use it to pay any personal expenses…ever!
2. Available Software Tools
Now that you have a separate checking account, you’ll need some way to keep track of bills, checks, sales receipts and deposits. There are a number of available options dependent upon the size of the start-up and most are now online, saving you the cost of purchasing and updating software on a routine basis. The costs are likely to be similar for online options, however, the cost is spread out over a monthly basis, which tends to make it more attractive for cash flow purposes. The major players here are FreshBooks, Xero and, of course, QuickBooks. All of which can be purchased for as little as $12.95/month and the products are scalable for growth.
3. Know Yourself
When starting your own business, you are typically the president, manager, clerk and chief bottle washer. You get to do it all! This is true when it comes to the financial side of the business, too. It’s important for you to completely understand the life cycle of your business and how they impact your finances. At some point, though, you need to evaluate your capabilities as it relates to bookkeeping. Is this an area of strength? Or could your strengths be put to better use creating value in other areas of your business? The answers to these questions may drive you to hire a part-time bookkeeper or, perhaps, outsourcing the work to a qualified accounting firm. This is an area in which UCentric Solutions specializes.
4. Cash Flow
As an entrepreneur, cash flow is the pulse of your business. By far, it is the most important measure you need to manage. If you don’t have a separate checking account or accurate financial records, you put your business at significant risk of failure. Gauging the performance of the business solely on how much money is or isn’t in the bank account on any given day is a recipe for disaster, which I’ve seen replicated in a number of start-ups. A solid bookkeeping process coupled with a cash management forecasting system, monitored closely and frequently is essential to your success.
5. The Sales Tax Conundrum
Many new entrepreneurs never consider sales and use tax regulations until they find themselves on the wrong end of a sales tax audit. With state tax coffers running desperately low these days, states of escalated the use of audits to replenish them. Just recently, several of my new clients experienced this first hand. They were extremely time-consuming and very expensive! This is a complicated topic and time needs to be spent addressing how sales tax applies to the specifics of your business. Don’t skip this!
6. Record Retention Requirements
Once you start your business, you will find that you accumulate paper like a maniacal hoarder! Invoices, bills, checks, deposit slips, notices, statements and varying tax returns, to name a few. All of these documents have a specific retention requirement according to various regulators, both state and federal. Now, I will go on the record that (1) I hate paper and (2) I am the worst filer in history! For that reason, I scan every piece of paper that comes into my office and have electronic copy of all that goes out. Scanners and computer memory are much cheaper than a storage room full of filing cabinets and paper. Keep in mind the record retention requirements are the same, however, if you’re like me, it’s easier to manage.
Accurate record keeping is a critical component of running a successful business. If you can effectively address the issues above, you will have made significant strides in placing your business on a solid foundation. If you’d like to set up an appointment to talk to us, click on this link.
Just a reminder, the next article in the Where Do I Start? series, addresses the question of Do I Really Need a Budget?