FAQ: Recordkeeping for Businesses
January 17, 2022
Running a business has many challenges, and one of the challenges business owners face is keeping good records. This applies to all businesses, whether they have a couple dozen employees or just a few. Whether they install software or make software. Whether they manufacture or distribute products. Whether they are medical offices or law firms. Keeping good records is an essential part of running a successful business. Here are some questions and answers to help business owners understand the ins and outs of good recordkeeping.
Why should business owners keep records?
Good records will help them:
- Monitor the progress of their business
- Prepare financial statements required by bank or 3rd party
- Perform various business analysis to identify opportunities and areas for improvements
- Keep track of expenses
- Prepare tax returns and support items reported on tax returns
What kinds of records should owners keep?
Business owners may choose any recordkeeping system that fits their business. They should choose one that clearly shows income and expenses. Except in a few cases, the law does not require particular kinds of records. The Cambaliza McGee LLC CPA team strongly recommends business owners invest in a good scanner to scan and store all the receipts, invoices, etc., if their electronic copies are not available. Paper documents and receipts are more likely to be faded when the IRS needs to take a look at them. Bank statements, credit card statements, buy/sell agreements, contracts, and all tax returns should be kept.
How long should businesses keep records?
How long a document should be kept depends on several factors. These factors include the action, expense, and event recorded in the document. The IRS generally suggests taxpayers keep records for three years and all records of employment taxes for at least four years.
In our personal opinion, keep those income tax returns forever (electronically, of course). The CM CPA team can work with you to ensure you follow the best practices.
How should businesses record transactions?
There are a variety of systems to capture business transactions. The most important part is choosing a system that is easy for business owners to use and monitor their business progress. Reaching out to a coworker in the same industry for recommendation as well as your CPA can help you narrow understand the options that will work for your business. All requirements that apply to hard copy books and records also apply to electronic business records.
Business owners can wear many hats. They are the sales department, marketing team, HR department, logistics team, CFO, and customer service department all rolled into one. Most business owners spend their time and energy running their day-to-day business operations, and accurate recordkeeping is a critical part of your business's success. At Cambaliza McGee LLP, we partner with you at every stage of your business life cycle. Talk to us.