Small Business Recordkeeping

A Home Business Article Contributed by Barbara Gibson

Small Business Records

Keeping records is important for all of us, especially small business owners.Few of us can boast that we have never lost a receipt or other important item. We can all relate to that inevitable panic we experience when the order, statement or report eludes us. Also, whether or not we have had the experience, many of us dread encounters with the IRS. Imagining the pointed questions and close scrutiny is enough to make us promise, once again, that our record keeping habits will be impeccable from this point forward.

Maintaining records can be especially challenging for small business owners. There are many reasons for these challenges including, limited time and staffing or lacking skills and or knowledge of what records must be maintained by the small business owner. Unfortunately, pleading ignorance will not make the issue or the Internal Revenue Service disappear.

As you might imagine, the IRS is very interested in your records because, ideally, they provide a detailed picture of any income you've earned. You should also be able to use your records to make an irrefutable case for any deductions or credits you take at tax time. If no such picture can be formed in a review of your records, it could cost you money or even your small business. Before you begin to imagine the drudgery in store, remember that there is a bright spot.

Accurate record keeping can also help your small business on the road to financial success. For example, how else will you know which items sell well and which do not? How will you ensure that your small business receives all of the deductions and credits to which it is entitled without receipts and other necessary documentation? There are advantages to record keeping. The key is to manage the task daily so that it does not become overwhelming.

Collecting Small Business Records

Start with the basics. If you do not have a central location for all of your receipts and invoices, etc., establish one right now. Do not confuse these receipts with items unrelated to your small business. Separate bank accounts, receipt folders, and of course, tax returns, can eliminate later confusion. This rule is also helpful for expenses. Do not use money from your small business for personal expenses. This point cannot be overemphasized.

A final tip on small business records. Give particular attention to expenses incurred through travel or entertaining. We have all heard stories of business owners, small and otherwise, that claim unallowable meals or trips. It is not appropriate to take friends to lunch, mention your small business in passing, and later claim the lunch as a deduction. If you are audited, the purpose of the meeting and the attendees relationship to your business should be immediately clear.

Keeping Small Business Records

There are many useful software programs that take much of the guesswork out of accounting and eliminate the need for excessive paper. Just remember to back-up your data daily. Also, save your records for at least four years.