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A big mistake many new business owners make is not keeping good records. There really is no reason in this day and age of computers, the Internet, and spreadsheets not to track all your accounts payable, receivable, payroll, inventory and insurance. If you’re really not sure what you need to keep, get the advice of a professional account before setting up all your necessary financial sheets. Records help you watch the way your business is growing. It gives the background information you need to prepare financial statements that may be looked at by investors. You will also be able to look back upon your expenses after a year to see if they are deductible and you have something tangible to use as support on all your business concerns when you file your taxes. Depending on what type of business you have will help you determined what kind of financial records you are going to need to have for tax purposes. Businesses can be service oriented, or product oriented. With products, you will need to be able to track and support any inventory claims, damaged goods, and other supply issues. It doesn’t matter what type of system you use to track your financials, just make sure you track them. You should also plan on keeping your records for a set period of time. Some places suggest keeping them for seven years, some ten. This is another example of where the advice of a professional accountant is very useful. Makes sure you also keep a back up of the records. If you are tracking everything on the computer, back-up your system everyday, and keep an extra set of printouts and back-up data disks off site in the event that something happens to the originals. You never know when you may need to have them to back up an audit by the local tax authority. Keep your own employment records – insurance information, pay stubs, W2’s – for at least four years. You should always record purchases you make for the business, sales of your product including taxes charged and demographic information, and any other transactions that affect your business. If you’re not sure whether you should document it, err on the side of caution and record it anyway. It’s always better to have too much information than not enough. If you’ve logged something you don’t need when supporting your business, you can always weed it out. The burden of proof lies squarely on your shoulders if you should ever be audited. You will have to prove any financial entries in your general ledgers so make sure you have all the backup paperwork. You may have explain and support some of your expenses to prove they are allowable deductions when submitting your taxes. Good record keeping is part of any good business and it’s a practice you as a business owner need to take seriously. Don’t worry if you’ve never done it before. There are plenty of computer programs available to aid you in keeping everything organized and your business running smoothly from the day you start it.
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James Anderson is author of this article on Starting a business. Find more information about Business here.
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