A company’s financial statements tell the story of a business. The income statement will provide you a story of the present-day state of affairs.
While the balance sheet provides you with a historical picture of the assets, liabilities, and equity over the lifespan of the business. Record keeping plays a significant role in providing the supporting details to paint the full picture of the story.
In order to determine the success of a business at any given time, you must keep accurate and detailed records of the day-to-day transactions.
It is imperative that all customer’s accounts receivables are properly recorded to ensure payments are collected and documented to the correct client’s accounts. Your accounts receivable needs to be updated and reviewed regularly to ensure your income is stated correctly.
You want to maintain positive relationships with your customer’s by applying their payments correctly to ensure repeat business.
A business must also record expense transactions in a timely manner to ensure that invoices are only paid once and to reduce the potential risk of fraudulent transactions.
You should keep track of your tax-deductible expenses when they occur to maximize your potential to take advantage of any available tax breaks. I encourage business owners to invest in a document scanner to maintain electronic copies of checks received and invoices paid for record retention.
You can save files with electronic storage applications; such as Dropbox for efficiency and share them amongst designated co-workers.
It is vital to keep records for compliance regulations. The IRS requires businesses to maintain records for a minimum of 3 years. Your records will be used to validate the items reported on your tax returns in the event of an IRS audit.
Record keeping is an important step in telling the story of your business so make sure you take the time and care to ensure your business’s story is told correctly.