Devising a system or a routine will help you maintain accurate records on a daily, weekly and monthly basis, saving you hours, maybe days, of work quarterly (when you pay estimated taxes) and yearly.
Tips for Good Record Keeping
- Pay business-related expenses with your business checking account; pay personal bills with your personal checking account.
- Devote one credit card solely to business use.
- Keep a record of every deposit to your checking account as well as every payment.
- Make all deposits of business income directly to your business checking account. Depending on the type of business you have (sole proprietorship or incorporated), you will either transfer money from your business account to your personal account, or pay yourself a salary.
- For every expense, keep a record of who you paid, the amount of payment, the type of expense and the date.
- Keep each year's appointment book or calendar with your tax records for that year. You may need to use it for supporting information about business travel and related expenses.
- The Internal Revenue Service and state tax agencies expect you to keep records of your sources and amounts of income. If you are ever audited, these agencies will inspect billing records and your business's other financial records.
Bonuses of Good Record Keeping
Even if you consider it drudgery, keeping good records allows you to conduct business more effectively than poor record keeping. For instance:
- If you need to borrow money, lenders will need detailed and accurate financial information.
- Detailed records help you evaluate your business more accurately should you ever decide to sell. (And if your records are easy to assemble, accurate, and neatly kept, your potential buyer will more than likely have a better impression of your business as well.)
- You can use your billing records to figure out what types of clients are most and least profitable. Use that information to refine your marketing plan. For instance, maybe your most reliable re-bookings come from schoolteachers in the week following their monthly paychecks. A well-timed marketing promotion could encourage more teachers to become clients.