Excellent record keeping is like building a house: without a good foundation, your house will collapse. You can avoid most problems that arise from not having up-to-date records with good record keeping. This will help you keep the proper documentation of the company, which is necessary for important decisions.
How to keep your records
Keeping records is an important task for business owners to manage the business efficiently. There are many ways to keep records, but the most common ones involve either paper or computers or a combination of the two.
A digital system of record keeping requires that you must save all data on a computer or digital device. This may include emails, phone conversations, web browsing history, and more. All these records can be accessed when needed and may be archived offsite for protection in the event of a natural disaster or other emergency.
A paper system is just like it sounds. It is a way of keeping records in paper form. This requires a great filing system and the dedication to keep things organized so you know where the documents are when needed.
More and more businesses are using a combination of the two.
Which records should you keep?
As a rule of thumb, keep all records that back up spending, purchases, employee data, or owner contributions and distributions. These include receipts, cancelled checks, documents that support income (including unemployment), property you dispose of or sell for figuring your basis of gains or losses, employment tax records, and property you purchase for the business. You should keep most records for 3 years from the date you filed your tax returns. Employment records should be kept for 4 years after the tax is due or paid, whichever is later.
Other Items
It is easy to remember to save receipts and cancelled checks, but here are a few other instances where good record keeping can come in very handy. If you change your address, you need to notify the IRS and keep a record of the change. Did your name change? Then notify the Social Security Administration and keep records of the information.
Finally, a big area where good record keeping comes in handy is when you review your tax return. Receipts and documents can help you make sure that no credits or deductions were overlooked in preparing your return.
In a nutshell, if you are not sure if you should keep the document, then keep it. You can always ask your bookkeeper when doing your monthly financial review.