The Importance of Keeping Good Records

In our world we hear a lot of the same thoughts from our customers:

·       I started this business because I was excited about my product/service, not to do paperwork!

·       I am so busy with my business I don’t have time to keep up with my books.

·       Accounting was never my thing, I just don’t understand how it works.

·       I don’t even know where to start: what system, what do I keep?

We get it!  Bookkeeping is not where you want to put your focus.  You love what you do but don’t have the time/money/resources/desire for the paperwork.  However, we want to demonstrate to you why it is so important and some ways you can make things easier on yourself!

There are many reasons to keep good books for your business. From government regulations to making good business decisions, it’s time to prioritize accounting.

1)     General Organization – Alright, who here is a procrastinator?  It’s okay, you can raise your hand, no one else is looking.  It’s easy to prioritize other, more interesting things above record keeping.  Or to put things off for when you have more time later…but more time never comes.

If you determine what your record keeping system will be and are diligent in keeping up with it, you will find that it is much less overwhelming to spend a few minutes every day logging your activity rather than trying to do all of it at once when you are under a deadline.

2)     Decision Making – Every day you are making decisions in your business.  Should you purchase that equipment today or two months from now?  Should I apply for a loan from the bank to start a new product line?  When can I take a distribution to pay myself?

Timely record keeping provides you with the data you need to make informed business and management decisions.  If you aren’t tracking the monies coming in and out, what checks are outstanding, what projected costs are budgeted, etc., you won’t know when you should invest in your business.  You might miss out on opportunities because you weren’t data prepared.  You might miss out on bringing on another employee to increase output, or to switch production if demand for your product mix is changing.

3)     Taxes – Let’s face it.  Every year you are going to have to pay the piper.  Keeping good records throughout the year allows you to complete the process in the least painful manner.  You won’t be chasing after documents, trying to remember what happened months ago, and having everything laid out in front of you allows you to better investigate credits and deductions that can help save on the tax bill!

These are just a few of the reasons to start considering improvements to your record keeping processes and systems.

“Okay, you’ve sold me, I need to keep better records! But where do I start?”

There are two key questions to focus on, “How do I track my data?” and “How do I store my support?”

Tracking Data

Determining the system to use to track your data depends somewhat on preference, but mostly on the size and complexity of your business.

Some small business, even today, can still get away with tracking their data in a manual ledger on paper.  If you are looking for at least a little technology, it is fairly easy to keep track in Excel. However, if you have a growing business, you will quickly find these methods will fall short of your needs.

Quickbooks remains one of the most highly recognized brand names when it comes to small business bookkeeping software.  Many will note that it is easy to use and set up, you can link it to your bank account so that you can quickly load transactions and reconcile accounts.  However there are other small business software applications out there that may also fit your needs.

Patriot Software  is a new option which is low cost, available month-to-month if you are worried about making a long-term commitment, easy to use, US customer-based support yet still provides the quality and options you find with other software.

There are several articles out there that provide information when choosing a small business accounting software.  Check out Nerd Wallet for one that displays pricing and pros and cons to assist your selection.

When selecting your software, there are some things to consider.  Many of these are made for the small business owner looking to track their activity.  They don’t necessarily function in a way that have certain controls or captures data in a way that is conducive to audits and will require you to be more vigilant in saving reports.

For example, if you reconcile a bank account today and have five outstanding checks the bank reconciliation will display a particular balance and reconciling items.  Three months from now, some or all of those checks may clear and if you go to rerun the bank reconciliation on that day, it will have a different balance and reconciling items. 

Being mindful of these considerations just helps you to set up the procedures you need for storing your supporting documents.

As your business continues to grow, you may need to graduate to a larger accounting or Enterprise Resource Planning (ERP) system.  These systems can process larger amounts of data, integrate with other business systems, have document management in the system, and connect more of your business processes to each other.  These include systems from Oracle, Microsoft Dynamics, SAP, NetSuite, etc.  A roll out of this type of system typically requires a detailed project to review options available, set up a testing and deployment plan, and organize change management for your processes and people.  Often, an external consultant is needed to assist a business with this planning process.

Storing Documents

Again, the choice in how you store documents will be driven by preference and business complexity.

Some may save receipts in a shoebox, sorting by date or by vendor, and include notes on the top so they remember what the purchase was for (“lunch with networking contact” or “printing supplies”).  While this may not be the most recommended way to do it, I’ve seen people make it work!

But for those looking for a more sophisticated set-up, you can choose between hard copy documents, electronic documents, or a combination of both.  These days it is easy to scan a document with your phone, so there is less need to have large spaces dedicated to saving stacks of papers.

The key is taking a few moments at the beginning of the process to determine what your end goal will be to set up your organizational system.  For tax and financial statement purposes, you will typically need to keep documents separated by your fiscal year.  Do you want to be able to search by vendor or customer, type of expense or revenue, date, department, or other consideration?  This will help you to set up either hard copy or electronic folders so that you can ensure your documents are sorted in a way that helps you to retrieve the most necessary information when you need to review for a business decision or to compete a required filing.

Returning to our systems, understanding what is all included with the software application package allows you to determine if you will need to print out regular, periodic reports (in either hard or electronic copy) or if you can rely on the system to generate historical reports as you need them.

While keeping the books can sound a little tedious or scary, creating a system and procedures will help to keep you on track and set your business up for success.