It’s critical for businesses of all sizes to keep up-to-date and well-organized financial records.
Regardless of whether it is a hard copy or electronic filing system, record keeping helps track growth, identify problems, generate statements and support business development.
Why Business Growth Depends on Financial Record Keeping
Legible, accurate and complete financial records are crucial to any business’ success because they provide the insights to resolve issues, operate efficiently and increase profitability.
Small business owners must be able to continually review and understand business assets, income, expenses and liabilities.
Detailed records will generate insightful financial statements, such cash-flow projections and profit and loss statements, which will present a comprehensive picture of all business operations.
This information may be used to identify strong phases and weak processes of the business’ operations.
What Questions Will Record Keeping Answer?
Good records will answer a variety of financial questions.
These may involve inventory turnover frequency, future income generation and accounts receivable cash flows.
Business owners can use their financial records to calculate how much they owe on rent, utilities, equipment and supplies.
They will be able to differentiate between payroll, merchandise, advertising, maintenance and employee benefit expenses.
It is important to know which services and products are driving profits, breaking even and wasting money.
Business owners should always be able to estimate how much cash is in inventory and available for capital investments.
Certain financial records must be kept for compliance purposes.
All purchases and expenses, such as canceled checks and credit card receipts, must be kept for at least three years for tax purposes.
It’s important to know the payroll tax liabilities for auto-pay systems. Employment records should include all wage, annuity and pension payment dates and amounts.
The IRS requires that employment tax records should include things like EINs, reported tips, W-2 copies and employment dates.
They must also include the SSNs, names, addresses and occupations of employees and other recipients. The IRS states that these records must be kept for at least four years.
Accurate and organized financial records will help business owners understand how their financial and operational success compares with competitors and the industry.
Contact us to learn how our outsource bookkeeping solutions take care of important administration tasks so businesses owners can focus on operations.