For the Record

Behind every successful small business story there’s a lot of hard work and, yes, administrative effort. To really make your business prosper, brilliant ideas are only half the answer – you also need to ensure that your company is solid from the ground up. One way of establishing a solid business base is through good record keeping. While this may not be entrepreneurship’s most glamorous aspect, it is nonetheless a prerequisite to consistently good results.

Accurate and consistent records enable you to keep track of your company’s progress. Records show whether sales are up or down, which customers are spending and which are not, and whether any changes are needed. Without adequate documentation, making reliable business forecasts or looking back to see where you have been successful in the past is considerably more difficult.

Good records are also fundamental to the preparation of financial statements – which are necessary when dealing with banks and creditors, and also allow you to access information about your assets, liabilities and equity in your business quickly and systematically.

Small businesses receive money and property from a variety of sources on a regular basis. By using accurate records you can identify where your various receipts come from and separate non-business receipts from taxable income.

A simple but important function of records is to act as a supplement to your memory. For example, tax-deductible expenses may occasionally slip your mind. Without an adequate record keeping system, you will not be able to claim deductible outgoings at tax time – a loss which could be particularly detrimental to your business.

Records need to reflect the income, expenditure and credits that you note on your tax return. As a general rule, these figures will be the same that you use to monitor your business during the year. Keeping good records throughout the tax year, and not just scrambling to assemble documents when your return is due, also means that you will have accurate figures available for official inspection at all times.

Choose your manner of record keeping based on the type of small business you run. If you operate more than one small business, make sure that each operation’s record keeping is entirely separate. Stay tuned next week for more record keeping tips.