Introduction to business balance sheet keeping
Small businesses and franchises alike collect large amounts of business records related to finances and operational activities . An efficient business image file storage system is necessary to keep track of these past projects and transactions.
By having important files at hand, organizations can review their activities for accounting purposes. It will also streamline the processes of tax preparation and annual audits. In addition, record keeping gives managers clearer insight into their financial health, allowing for more informed decision making.
6 tips for keeping business records
Small businesses interested in improving their record management systems can follow these best practices.
Establish a digital document management system
Going paperless is not only sustainable, but also reduces the likelihood of clutter and disorganization. Managers should digitize their invoices, receipts, and contracts and store them in an online system.
In addition, electronic file names can be customized according to what the document contains. For example, a contract with a vendor may be titled Contract with Vendor A. This makes it easier for staff to find it on their desktop than to look for it in a filing cabinet.
Track mandates for record retention
Government agencies such as the Internal Revenue Service (IRS) require organizations to retain certain documents for a specified period of time. Generally, records must be retained within 2-6 years, depending on the document involved. However, business experts recommend that companies maintain all their records for at least 7 years. Many of these records include business income documents, tax deductions, and payroll records.
The following are some of the most common records that small businesses should have on hand.
- Employee contracts
- Paystubs
- All tax forms for the IRS
- Account statements
- Credit card records
- Health insurance-
- Receipts
- Customer and vendor invoices
- Financial Recor
- Tax declaration
- Legal documents
- Business registration documents
- Real Estate Information
Perform regular backups and security checks
In today's digital age, data breaches, software viruses and theft can occur unexpectedly. Business owners must take preventive measures and back up their electronic files regularly. By using a cloud-based storage system, online data sets are usually automatically backed up. If the business has physical paperwork, a copy of each document should be stored in a different location.
In addition, most business records contain sensitive and confidential information such as social security numbers. Therefore, these documents must be properly secured. Companies should set up a system that is password-protected or has two-factor authentication. Regular security controls ensure that the system effectively secures information.
Separate business and personal financials
Documents related to business finances should be separated from personal files. In addition, all business expenditures and checks should be made only through the company's bank account, not that of an employee or manager. This will make it easier to track and record the company's cash flow. The IRS also prefers to see that a company's financial assets are completely segregated from personal funds. If this is not the case, the organization may need to audit both its personal and business transactions.
Save all receipts
Effective record keeping requires the storage of all company-related receipts. Receipts from vendors and third-party partners are often physical documents. These can be kept in a folder reserved for that fiscal year. A note of what and why the purchase was made should be attached to the receipt. Additional information will help the business prove that the purchase was a business expense.
If a company is paperless, the receipt can be scanned and digitized. This provides an additional layer of protection in case the physical receipt is lost or damaged.
Implement payroll and accounting software
Payroll and accounting software can help streamline the record keeping process. These systems can automatically create and archive important documents such as customer invoices and tax forms. It also makes it easier for users to find the required files. The latest tools can be easily integrated into the company's existing business management solutions.
8 Small Business Recordkeeping Rules
When developing a business records process, small business owners should consider these 8 key rules.
1. Always keep documents that contain information for a tax return, such as income, deduction and credit. These files generally include receipts, bank statements, and pay stubs.
2. Keep these financial statements for at least 3 years.
3. Tax records that contain information about employees should be archived for at least 4 years.
4. Records of omission of income from a tax return must be kept for 6 years.
5. Documents on the cost of bad debts or worthless securities should be stored for 7 years.
6. Use electronic recordkeeping and schedule regular backups.
7. While expenses related to transportation, meals, and lodging that are less than $75 do not require a receipt, owners should still report the expenses to the IRS.
8. One document may be important in the future. If you have doubts about a record, keep it only for the case.
When a company is operating, more documents will accumulate. By following these rules and best practices for business records retention, management teams can improve their processes.