By Caren Schwartz
Your business may be selling a product or a service, writing a book or creating works of art. Regardless of what you do, keeping good financial records is vital to the success of your business, and it doesn’t have to be difficult.
Keeping good financial records aids you in knowing how your business is doing and pricing your product to cover costs. Accurate financial records will help you identify all the business expenses that can be deducted on your tax return, and justify your deductions if the IRS does an audit.
Keeping financial records does not need to be difficult or tedious. The level of detail needed will depend on the type of business. A company selling items on consignment will have different information needs than a manufacturing firm or a service business. The final output needed is the same for all businesses; a profit and loss statement and a balance sheet are the minimum. A statement of cash flow is especially important if you are in a product business where you will have to pay for purchases in advance of receiving cash from sales.
Financial records can be kept manually or using computer software. If you want to track your finances manually you can get checks that include a sheet for allocating the income or expense to various categories. This is usually called a manual One Write check system. Alternatively you can use multi-column paper and set up your own system. Use the columns to categorize your income and expenses.
Whichever system you use, the only way to make sure your records are accurate is to reconcile your bank statement. Bank charges for a business are deductible on your tax return, and banks have been known to make mistakes.
Keeping financial records on the computer simplifies much of the sorting and reporting. Computer tracking can be a spreadsheet, or any of a number of programs specifically designed for bookkeeping. Software costs can ranges from $150 to many thousands of dollars. For most small businesses a package will cost less than $200. Most of the major PC magazines review and compare the accounting packages regularly. Consider hiring a professional to set up the software and teach you how to use it. Classes may be available from local colleges or continuing education programs. If you need outside help most software companies can recommend consultants familiar with their software.
If you don’t have the time or the inclination to do the financial work yourself, hire an expert. Ask for recommendations from other business owners, lawyers and accountants. Contact the Association of Professional Bookkeepers. Interview bookkeepers, ask questions and check references. Remember, it is your money and your business.
Whether you keep your financial records manually, by computer or by hiring a bookkeeper, the most important thing is consistency. If you don’t put the information in, you won’t get anything helpful out.
© Copyright, Caren Schwartz, 2002.
Caren Schwartz is the founder of Time & Cents Consultants, LLC, a Southport, Connecticut firm that works with professionals to help them purchase, install and utilize software to manage their time and money. She is a Certified Professional Advisor for QuickbooksQuickBooks® and a Certified Consultant for Timeslips®, TimeSheet Professional® and Amicus Attorney®, as well as an Authorized Independent Consultant for Time Matters. Caren is also certified on Phoneslips®, Compulaw and TABS.