All too often small business owners postpone record keeping until the end of the year, when it’s a mad scramble to pull together receipts, bills and canceled checks for tax time. Regularly filing and keeping good records can feel like a waste of time when you’d rather spend every spare moment working on your business, but carving out a few minutes every day can help you stay on top of this important, yet often dreaded task. This beginner’s guide will help you move from sticky note chaos to fully organized records!
Why should I be keeping good records?
Besides satisfying the IRS and being able to quickly find information at your fingertips, a good record keeping system also enables you to monitor your business’s performance and identify any weaknesses and opportunities.
What’s the best system? It depends!
Except for certain businesses, the IRS doesn’t require you to keep your records organized any specific way. As long as you can clearly show income and expenses, it is up to you to determine what’s best for the size and complexity of your business. Whatever style of record keeping you develop, it should be logical, accurate and thorough. That fact alone will lend credibility in the event of an audit.
What do I need to keep track of?
In general, a solid record keeping system includes these five elements:
- A check register, preferably separate from your personal checking.
- Income by day, week or month whichever is applicable.
- Summary of expenses with receipts – keep receipts and paid bills in a manila or accordion file divided by category (e.g. “phone” or “office supplies”).
- Purchases like land or equipment.
- Any employee or contractor wage records.
How long do I keep records?
Retention schedules for business documents vary, so it’s best to check with the IRS or your tax advisor before purging. Typically it’s six to ten years for most. That may require a good file cabinet to house all those records!
What about employee records?
If you have employees, you’ll need to maintain accurate, confidential records for them as well. Files include the following:
- Personnel. These files contain the application, contact information, job references, resume, and list of emergency contacts. If relevant, the file may also hold documentation of any disciplinary activity, employee handbook sign-off, or other types of related documents.
- Payroll. This file has all information essential to paying an employee such as government forms, details about the various positions held by the employee, departments, compensation including tips, and garnishments.
- Benefits. In addition to cash paid to workers, keep track of any fringe benefits you provide to workers.
- I-9. This is typically a single file for all employees and is separate from other employee records. This allows for official governmental accessibility while maintaining employee confidentiality.
Where can I get additional help?
If you have specific record keeping questions for your business, talk to your accounting professional or the IRS as they are in the best position to consult with you. If you’re ready to put a system into place, OfficeZilla can offer a wide range of filing systems, book keeping and organization tools to help.