How to Keep Books for a Small Business: 13 Tips to Follow

How to Keep Books for a Small Business: 13 Tips to Follow

bookkeeping for my small business - what documents do i need to keep

You can also search for professionals or bookkeeping services online. How to find the best virtual bookkeeping service can help you get the process started.

It may seem logical to keep records for as long as you have the storage, but you may delete records that haven’t been relevant to your business for more than seven years. Without the proper documentation, you may face an increased tax liability and a negligence penalty equal to 20% of your underpayment. Records stored on paper or on a hard drive should be backed up to at least one other location.

Prepare for personal and business taxes.

Bookkeepers come in at $17.26 per hour, according to PayScale. Starting a business can be an overwhelming process, but if you follow this list, you’ll have your new store’s finances in order from the beginning.

bookkeeping for my small business - what documents do i need to keep

The general ledger is a collection of accounts that display the changes made to each account based on past transactions, along with the current balances in each account. For more information, reach out to your BKD Trusted Advisor™ or submit the Contact Us form below. If you’d like to learn about our accounting solutions for small to midsize businesses, check out our Outsourced Accounting Services webpage. Performance Tracking – Records that track income and expenses on a regular cadence are critical for measuring how well your small business performs.

Prepare financial reports

Though most small-business owners use some form of accounting software, having paper backups is important. If the business owner’s tax return stated a loss, the IRS recommends keeping financial files and tax documents regarding that loss for seven years. Since this is the case for many small-business owners, keep your past financial and tax records for at least seven years. Good bookkeeping requires organization and attention to detail.

The IRS usually audits less than 1% of individual and corporate returns submitted, so don’t live in fear of an IRS audit. But if your business is chosen, they’ll require proof for all income, deductions, and credits you report on your taxes. Storing records on cloud-based software lowers the risk of losing them, but it raises the risk of theft. Your business records include sensitive information, like employee Social Security numbers . Some business records, like a nonprofit’s tax-exempt certificates or a business tax ID, never become irrelevant, so always keep them close at hand.

Last Year’s Tax Return

You need the log because not every purchase will have a receipt. On the log, record the amount taken from petty cash and what is was spent on. Enter the information immediately.For example, if you took $20 out to buy new pens for the office, you should enter the information as soon as you remove the money from the petty cash box. If you have money left over, then record that you are returning money to the petty cash box. They are slightly more expensive than manual record keeping supplies. A simple program like Quicken runs about $50, while programs that are geared toward larger businesses can cost $150 or more. Either way, you must keep a record of each expense — jotting down a brief description of the business expense, the date incurred, the amount, and to whom it was paid.

bookkeeping for my small business - what documents do i need to keep

In a financial transaction, it’s all about the paper trail. Strategic Planning – Planning for the future is a necessity, and thorough record-keeping allows a business to plan a strategic course for the future. Legal Accountability – Documents such as contracts, licenses and permits, insurance policies, leases, and HR/payroll information must be retained and accessible for reference purposes. So, you don’t need to feel overwhelmed as a bookkeeping app will make doing your books a whole lot easier, giving you greater peace of mind. This can range from loans you’ve taken out to any unpaid bills you might have yet to pay.

Compile a Chart of Accounts

As we mentioned, knowing when to delegate bookkeeping tasks instead of doing them yourself is a rather important decision. You have a detailed picture of how well your business operates to plan its future. Permits to operate your business, bookkeeping for small business current lease agreements and stock certificates should be kept indefinitely. You’ll find everything you need to conduct business with us. Working with a professional employer organization is an important business decision.

  • Get in the habit of staying on top of the amounts your customers owe you.
  • In our ice cream shop example, some accounts in your ledger might be “revenue-ice cream sales”, “expenses-ice cream ingredients”, etc.
  • Bookkeepers come in at $17.26 per hour, according to PayScale.
  • Asset information- Bring in receipts for any assets, like equipment, property, or goods you’ve bought or sold over the year.
  • We live in a time where data breaches and natural disasters are rampant.

This includes importing and categorizing transactions properly, reconciling these transactions and making sure they’re recorded according to your entry system and accounting method. Records all of your transactions once, either as an expense or an income. This method is straightforward and suitable for smaller businesses that don’t have significant inventory or equipment involved in their finances. If two sides of the equations don’t match, you’ll need to go back through the ledger and journal entries to find errors. Post corrected entries in the journal and ledger, then follow the process again until the accounts are balanced. Then you’re ready to close the books and prepare financial reports. Generally speaking, accrual accounting is better for larger, more established businesses.

Create a New Business Account

Check with the individual bank for which documents to bring to the appointment. NerdWallet strives to keep its information accurate and up to date. This information may be different than what you see when you visit a financial institution, service provider or specific product’s site. All financial products, shopping products and services are presented without warranty.

This gives you a second trail to follow when eyeballing discrepancies, looking for trends, and thwarting fraud. If you dread bookkeeping but feel it’s not worth outsourcing, you’re not alone.

Matthew Accounting, PLLC

On the profit side of the equation, you must also keep similar records of any income your business receives. If you claim a part of your primary or second home for business, you must decide which part is used for business and which is used as your personal living space. You can find free templates online, but as your business gets more profitable—or more complicated—you’ll need to consider working with a professional to manage these documents. Accountants analyze the overall health of finances by reviewing records and prepare your tax returns. In this post, you’ll learn what small business bookkeeping is and the pros and cons of hiring a bookkeeper vs doing the work yourself.

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