You need to know where your company stands daily, weekly, monthly, quarterly, and annually. Are you making money, is your client base increasing or decreasing, do you have enough money in the bank to meet your obligations, are you meeting the goals you set for your business? Without this knowledge, you have little or no control over your business. Also, you are likely to be in non-compliance with local, state, and federal regulations without proper controls on your finances.
Why is bookkeeping important in a business?
Bookkeeping is important because accurate accounting records are essential to a company's sustainability. Accurate bookkeeping helps a business manage its cash flow, meet its financial obligations and plan its investments.
Other key business documents that should be saved include important minutes from meetings, stock ledgers, lease agreements, and other contracts. Proper storage of records according to legal standards can be challenging for even the best administrators.
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However, it’s well worth the effort, as it can save the company from fines of up to £500,000, and even prevent scandals like the infamous Enron financial disaster. Financial regulations aren’t likely to loosen any time soon, and fines are only increasing. That means that understanding the regulatory environment is crucial for every sort of company, from large corporations right down to small and medium-sized businesses. Tax time might be the most important time for business recordkeeping, but taxes aren’t the only reason you should be keeping all of those documents. Say you dispose of a property by selling it during the 2018 tax year, report the financial gain on your 2020 tax return, and file your tax return right on the tax deadline of April 17, 2021. That means you’d need to keep records connected to the property until April 17, 2024 (i.e. three years after the filing date of April 17, 2021).
Always keep receipts, bank statements, invoices, payroll records, and any other documentary evidence that supports an item of income, deduction, or credit shown on your tax return. Other records, such as payable and receivable ledgers, bank reconciliations, bank business bookkeeping statements, and cash and charge slips, and any other supporting documents should be retained for seven years. Your bank statements detail all of your accounts with the bank. The accounts may include your checking, savings, investment, and credit card records.
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These statements can help you in dealing with your bank or creditors and help you manage your business. Of course, you need to have records of payments that are business-related separate from those that are for personal purposes. You should be able to provide either a canceled check or a credit card payment to show that a specific payment was made. Missing documentation can cause substantial liability and missed opportunities. Keeping tax returns and other records for the appropriate period allows your business to respond to information requests, including tax audits. Many CPA firms and other tax practitioners retain tax records for seven years, though some keep them indefinitely in digital storage.
Some businesses grow out of the manual system, but others may find that the manual system works just fine for the long run, too. They can keep your personal and professional purchases separated. Essential organizational documents should be readily available. These documents include articles of incorporation, a tax ID confirmation letter, partnership agreements, and shareholder agreements and resolutions.
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Consider keeping copies of your insurance policies in a location where they cannot be damaged. For example, you may store records digitally in the cloud or physically in a fireproof lockbox. Also, ask your insurance provider if they offer a digital account for you to download or view your insurance online instead of paper documents. Monitor your financial records at regular intervals (e.g., monthly or quarterly). And, verify that you track every expenditure and source of income. Without all of the accounting data, your records are incomplete and give inaccurate information. Keep all receipts and copies of invoices to back up your records.
- For example, you may store records digitally in the cloud or physically in a fireproof lockbox.
- Contact your vendors and financial institutions, who should have copies of your business documents.
- Microsoft 365 provides the ultimate platform for legal matter management, with document management, collaboration, workflow, and records compliance at its core.
- If you never file a return, the IRS suggests you keep your records indefinitely.
- Industries such as legal and financial services have varying requirements to ensure that the confidentiality and privacy of client and case proceedings is of utmost concern.
- Another option is to store records electronically, either in the cloud or on an on-site server.
- We have the expertise to handle all of your tax, accounting, and business needs.
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The legal documents your business has depend on your business structure. For example, incorporated companies (e.g., C corporation) must maintain their articles of incorporation. Other legal documents include partnership agreements for partnerships or a DBA for sole proprietorships. These periods are not offered as final authority, but as a guide. Your CPA, outsourced accounting service or tax attorney may recommend a different approach for your record retention based on the rules of your industry and the specific needs of your business.
“Capture” is the most difficult step and it’s the most important part of the process. Keep track of every amount you spend on your business and every amount you take in as sales. Take care to keep personal and business expenditures separate even if you always pay your business back when you pay personal expenses out of that account. Before you toss them, double check to see whether anyone else you do business with might need them. Creditors, business lawyers, and insurance companies all sometimes require you to keep records longer than the IRS does. For certain assets (residences, real estate, stocks, etc.), all statements, invoices, and purchase documents that substantiate cost should be kept, typically for seven years after the asset is sold. Depreciation schedules and asset-inventory records should be kept permanently.