ARTICLES

The Importance of Keeping Good Records

Keeping of accurate records is required for declaring earned income at tax time. It is in your best interest as a business owner to document all income and expenses related to operating the business.

The IRS has some very good resources for business owners regarding tax reporting. There is a section on their website dedicated to small business located at: http://www.irs.gov/businesses/small/index.html. Pay special attention to Starting, Operating or Closing a Business, Self-Employed Individuals and Business Expenses articles on the site. There is a wealth of information available.

Good recordkeeping is not just for tax reporting purposes. It is also used to identify slow or non-paying accounts, can be used in marketing plans and is a good general business practice. By knowing where your cash flows are coming and going, you can identify areas for growth, additional service offerings and can adjust your business plan to a changing market as needed. Forecasting returns on investment for major purchases is easier when your records are clear and concise and easy to use.

Say, for example, you wanted to purchase a new laser printer for business use. Proper recordkeeping would enable you to quickly and effectively determine when you would break even on the purchase, based on past experience. You could then determine if it would be more beneficial to use a credit card for the purchase and participate in a rewards program or to pay cash saved in an interest-bearing account for the expenditure. If it was determined that you would break even on the purchase within 50 days, you could put the funds aside in an interest-bearing account and make the purchase with a credit card. This would minimize your expense by earning interest on the purchase and using your credit card grace period to your benefit.

Operating a successful business takes planning and good recordkeeping. For additional resources, check your local Chamber of Commerce, Small Business Administration, tax advisor or financial planner for information on setting up and operating your small business.