Small Business Recordkeeping

IRSIf you are in business, you know how important record keeping is.  You have to keep records to know how your business is doing in addition to determining your state and federal tax liabilities.  Everyone has their own read on this task and you should choose a ‘system’ that is appropriate and scaled to your own needs.  The one size fits all NEVER works in the choice of your system.

I am not going to advise you as to which system you should use, but am going to give a few tips about how to approach the method and format that may be beneficial to you and your business. (I don’t have employees nor do I keep inventories.)

I really like the advice given by Ronald R. Mueller, MBA, Ph.D. in his book Home Business Tax Savings Made Easy.  Ron talks a lot about the day-to-day recordkeeping tasks and how to KEEP UP.

I have the same advice:  keep up.  Have a system that is ‘warm’ all the time and is easy to use, post all expenses and income EVERY DAY.  I like to do all my office chores in the office.  That is where the main computer sits, the file cabinets are there, the phone, etc.  Nothing is cluttered or scattered.  Things do not get ‘lost.’  Unposted items sit in a space between my keyboard and the monitor, with the items that need attention first on the top, by date.  Items that have been posted get transferred to the top of the file cabinet in a pile; they get filed before the pile gets too big.  Anything that does not have a hardcopy to file gets posted to my system immediately, then it can be forgotten.  This is the secret:  make the decision, post, file, forget.

FilesI have no more than a dozen items that need attention at any given time.  Usually less than 4.

I also have another trick:  write notes on each item manually with a pen.  Notes to yourself, dates, check numbers, amounts paid and from which accounts, etc.  This is a reassuring feedback to your future self that answers ‘what is this?’  I rarely have to look at the hard copies again, as the item has been posted in my digital system, but if I did, the notes to my future self tell the story.

I prefer to use a system that does an automatic Income Statement at any time in the year.   You need this to tell you how your business is doing at any time, not just the following winter when you have to do your taxes.  (This is NOT your Balance Sheet.) This format is designed to match your Federal Income and State Sales Tax forms.  You do not have to know a lot about tax law to make the posting decisions, but, as Ron says: “The MORE You KNOW, the LESS you OWE.”  Ninety percent of your posting should be a no-brainer.  You know which category the item goes in and the ‘decision, post, file, forget’ chore is easy.  For the other 10%, make a note to yourself to research the best advice, make the decision, and then move forward.

I know a lot of advice has been given about running everything through one system for expenses and income via a single business checking account or credit card, but I do not prefer that.  I post a lot of transactions that are cash based, both on the expense and revenue side.  I like to post business mileage as it occurs and have it show up as an expense in the month that it was incurred.  I don’t want to wait for a statement to get caught up on my posting, etc., etc.  What I do is keep a master Excel Workbook that has every little transaction on the revenue and expense side, with columns for business miles posted, Sec 179 deductions, sales tax, all the possible IRS revenue and expense categories, etc.

I also run multiple ‘Enterprises’ using the same workbook.  Each transaction is assigned to an Enterprise.  This greatly simplifies the recordkeeping and makes tax time far less ‘taxing.’

Dennis’til next time,
Dennis George
Highland Garden House B & B
501 E. Highland Ave.
Mount Vernon, WA 98273
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