If you are starting and running your own business, you probably have a very busy schedule. Keeping a business going is a lot of work, and if you are a solo entrepreneur, all of that work falls on your shoulders. It can be tempting to concentrate on all of the pressing day-to-day tasks, and neglect the ones that are important, but do not seem so immediately crucial.
Record-keeping is one such task. You know it is important, but you might put it off until you have an unused block of time when you can really buckle down and get organized. The problem is, that convenient time never comes for most entrepreneurs.
So, why is good record keeping so essential?
The Taxman Cometh
When tax time rolls around, small-business owners who do not stay on top of their record-keeping duties are left scrambling to dig up those long-lost receipts, often missing out on valuable tax deductions in the process. On its own, each deduction might not amount to much, but they all add up, and you owe it to yourself not to miss out on any of them.
For tax purposes, you should keep records of all your business’s income, from cash register tapes to receipt books. Expenses must also be tracked, including utilities, rent, employee salaries, fuel and airfare receipts for business-related travel, and petty cash usage.
Any expense that contributes to the cost of the production of goods or providing of services should also be logged, as it may be tax-deductible. Meticulous logs must be kept on the costs of business assets, as deductions may be taken as they depreciate over time. If your business has employees, keep records on their tax information and how they have been compensated.
If you have all of these records organized and accessible, filing taxes will be much simpler, and if your business is ever audited, you will be able to show the auditors any data they might request.
Know Your Business
Good record-keeping isn’t just essential for tax purposes, it’s also a valuable source of strategic information. Keeping accurate financial records can help you maximize your business’s profitability. In knowing exactly how much profit a business is making, after taking expenses and losses into account, you will be able to make sound management decisions.
Accurate Records Aid Credibility
If you intend to apply for a source of business credit, such as a business loan or line of credit, you must be prepared to show detailed financial records. Business lenders will want proof that your business has the financial capacity to repay the loan according to terms, and they are unlikely to just take your word for it. Armed with meticulous business records combined with a solid business credit history, your odds of being approved for a business loan are much better.