Recordkeeping is maintaining a history of business activities, financial dealings and data in a manner so that you can easily find those details at a later time. Responsible business owners establish an orderly and disciplined recordkeeping system for effective financial management.
Good Records are Good for Business
Effective recordkeeping allows you, the owner of a small business, to track business activities over time, plan for large investments, prepare taxes and satisfy compliance with legal requirements. Small businesses are required to track a substantial amount of information. For instance, customers, sales, and inventory all should be recorded in an organized system that makes sense according to your industry. As your business continues to grow over time, you can analyze organized records to anticipate future inventory purchases, or identify seasonal cycles when you need to hire additional employees. For more information about legal compliance and tax preparation visit the Small Business Administration’s Guide to Record Keeping or the Texas Comptroller’s Office for information about Texas Taxes.
If you still have not launched your business, choosing a system prior to opening your doors will greatly improve your recordkeeping efficiency. Your business will largely dictate what type of records to keep and how long to retain that information. The Small Business Administration has highlighted the following as essential financial statements for small businesses and templates from SCORE:
Balance Sheet: the big picture of your business finances through an equation that is liabilities + owner’s equity = assets. Liability examples are payable, taxes, or debt from loans. The owner’s equity is invested capital or retained earnings. Asset examples include; cash holdings, inventory, prepaid expenses, equipment, furniture, building or land.
Profit and Loss Statement: This is an income statement. It is used to project sales and expenses. It usually covers a period of a few months to a year. This should include costs of raw materials, inventory, payroll taxes as well as factor in repairs, utilities, insurance, and legal fees.
Cashflow Statement: This statement tracks how much money is coming in and going out of your business. Cash inflow includes cash sales, accounts receivable, loans or investments. Cash outflow includes expenses paid, equipment purchased, inventory or other payments.
These are intended as general guidance and may or may not apply to your particular business circumstances. The content in this article is not designed or intended to provide authoritative financial, accounting, investment, legal or other professional advice. For further assistance from business advisors please visit the Resource Navigator to find a local organization dedicated to providing assistance for small businesses.