A key part of running a business that is often neglected by new entrepreneurs is record keeping. How exactly does proper record keeping help a growing business?
Why is Record Keeping Necessary?
Good record keeping practices will allow you to monitor the progress of your business, prepare financial statements, monitor your cash flow, and identify your expenditures and receivables, as well as help in preparing your tax returns.
The kind of records you keep may vary due to the nature of your business and must, at the very least, clearly show your income and expenses. Accounting applications like HeadOffice helps significantly with record keeping by generating the necessary statements and reports you need to keep abreast of your business.
Benefits of Good Record Keeping
- It allows you to generate decision making information such as your break even point or when you will run out of cash.
- It allows you to accurately price your goods and services.
- It allows you to generate financial reports, which in turn improves your ability to access loans.
- Your business is more saleable as you are able to show that there are standard operating procedures established and demonstrate your performance history.
Seven tips to get organised!
- Establish a procedure around data entry, filing and the time within which it all gets done.
- Keep your business and personal expenses separate, you need to know what qualifies as a business expense and make sure your records reflect this accurately.
- Always get enough documentation to back up your claims for business expenses, such as invoices, cancelled cheques or receipts. Label your receipts with additional information to accurately track which expense category it falls into.
- Keep separate bank accounts for your business. This helps to keep an accurate record of cash flow into and out of your business as you have statements for each transaction. Do not use your business account for anything personal!
- If you must use a credit card for your business get a business credit card. It gives your business a professional look and makes the record keeping process simpler.
- Keep your records organised and in an easy to reach location so they are easily found and referenced. If you are frequently on the road, establish a system to keep all your receipts. Take a picture or keep a labelled envelope handy for receipts.
- Prepare to store your records for the correct length of time- usually seven years from the time they were created.
Record keeping does not have to be tedious, it just requires good habits and practices. If you are not sure how to correctly input data into your accounting software, don’t be afraid to reach out for help or get training.
What are some of the systems you use to ensure you practice proper record keeping?