Good record keeping can indicate, on paper, how your business is doing and whether you’re making a profit. You can get a good idea of which items are selling, which services are being used, or both. You can also pinpoint and categorize costs and expenses. Typically, business owners look at their records to analyze the current situation and determine what changes or improvements can be made. Essentially, good record keeping can mean the difference between business success and failure.
In addition to monitoring the progress of your business, good records will help you when preparing financial statements and your tax returns.
Inventory, expense tracking, payroll and salary records, employee information, client information, receipts, bank statements, accounts receivable, billing, and accounts payable are among the many records you will need to maintain while in business. Record keeping should be done in a diligent, detailed, consistent, and timely manner, regardless of the type of system you choose to use.
As your business operates, you’ll create an ongoing paper trail, which will provide the source of all business transactions through purchase orders, receipts, deposit slips, and so on. Gross receipts will help you indicate how much income your business is generating. Likewise, keeping records of all purchases will tell you how much you’re spending on materials used for the business or items for resale. You’ll need to maintain records of all your income sources and expenses, as well as employee-related records, including all employment taxes.
While many small businesses use computer software to handle bookkeeping and record keeping, it’s not imperative. Maintaining ledgers and using proper forms, available in most business stationery stores, can serve your purposes just as well.
For those business owners looking to set up their record-keeping procedures on the computer, you’ll want to purchase the software package that best fits your specific needs, and not be lured by one that simply has the most features. The goal is to save time by using a software program. If it takes you more time to set up the computer record-keeping system than it does to complete the tasks, then you’re better off using ledgers and paper.
If you do choose to use a computer software program to record revenues and expenses, you might consider one of these:
Quicken by Intuit (Single-entry accounting); Microsoft Money (Single-entry accounting); Quickbooks from Intuit (Double-entry accounting); Peachtree Accounting from Sage Software (Double-entry accounting).
Another set of records you may need to maintain (depending on your type of business) are inventory records. Keeping good inventory records will allow you to better manage your sales and inventory holdings. Such record keeping will also help you track buying trends, seasonal activity, and pilferage. You’ll want to know how much stock is on hand versus the amount you purchased, and can do so by keeping records of the purchase date of the items in stock, purchase price, sale price, and dates of items sold. You can use inventory software packages, a ledger, or notebook.
To track money coming in and going out, most small businesses use a revenue and expense journal. This is single-entry method of accounting records receipts and expenditures. The other method used, a double-entry system, is more time-consuming, but records both a debit and a credit for each entry, marking the money going out as a debit, and the item sold as a credit.
If bookkeeping tasks — done on computer or manually — are cutting into your time better spent in other areas of the business, then you might consider hiring someone with bookkeeping skills for a few hours a week to handle those tasks, and free up your time for something else.