Starting A New Business: 6 Records You Should KeepDownload Now: FREE GST 2023 GuidebookDownload Now: FREE Employment Pass ChecklistDownload Now: Free Incorporation Checklist
Keeping accurate and up-to-date business records is important for anyone starting a business. Doing so will help you make sound financial decisions, file your taxes correctly, and prove the viability of your business if you need to seek outside funding.
What is record keeping and why is it important?
Record keeping is the process of recording financial transactions for a businesshis is helpful to record all income, expenses, assets, and liabilities. By keeping track of these transactions, businesses can stay on top of their finances and make informed decisions about their business.
Record keeping is crucial for small businesses, which may not have the resources to hire a full-time accountant. By keeping track of their finances, small businesses can save money and stay in control of their financial situation.
How should you keep your records?
There are a few different methods you can use when it comes to storing and organiszing your personal or business records. You can keep your records digitally, on paper, or a combination of both.
Why do businesses prefer keeping their records in a digital format instead of a traditional paper format? One of the reasons is that it is easier to search and find information stored digitally. With a digital file, you can easily locate transactions just by keying in a phrase or a date. With traditional paper files, you may have to flip through pages or folders to find what you are looking for which is definitely more time consuming.
While it is important to keep track of all the details, knowing precisely what records you should keep can be challenging.
Here are six records that every small business should keep:
- Accounting Records
There are many different types of accounting records that businesses should keep. The most important ones are those that track the business's income and expenses. These records can help business owners understand how well their business is doing and where they can make changes to improve their profits.
Another important type of accounting record is the balance sheet. This document shows a company's assets, liabilities, and net worth at a specific time. By tracking changes in these figures over time, business owners can better understand whether their business is growing or shrinking.
Other types of accounting records include invoices, and receipts. All of these documents can help business owners keep track of their finances and make sure that they are staying on top of their budget.
- Bank Statements
Bank statements record all transactions between your business and your bank. They can provide important information about your business's financial health and can help you track your expenses and income.
Bank statements should be kept for at least five years, as they can be used as evidence in the event of a lawsuit. They can also help you determine if you are eligible for tax deductions or credits.
- Business Loans
You may need to take out a loan when starting a business or to expand an existing one. This is a major decision, and as with any other important decision, you should keep good records of what transpired.
One reason to keep good records of bank loans is to track your progress. When you have a clear picture of where your business stands financially, it's easier to make sound decisions about where to go.
Another reason to do so is to protect yourself from legal disputes. You will want to be prepared to provide proof that demonstrates you acted in good faith in the event that something goes wrong and the opposite party decides to take legal action. Thus, The best way to do this is by keeping detailed records of all interactions between you and the lender, including all paperwork related to the loan agreement.
- Legal Documents
There are many legal documents you will need to keep on file in a business. These documents can include articles of incorporation, partnership agreements, leases, and loan agreements. Keeping these documents on file can help ensure that your business is operating legally and that you have proof of any transactions that have taken place.
Having these legal documents on file can be very helpful if you are ever sued or need to sue someone else. They can provide proof of the agreement between you and the other party and help to resolve any disputes. If you store these documents electronically, back them up regularly in case of a computer crash.
- Permits and Licenses
Permits and licenses document what the business is allowed to do and can help prove compliance with regulations. For example, a business may need a license from the state to sell products or a permit from the city to operate in a specific location.
Permits and licenses also expire, so it is important to keep track of when they are set to expire and renew them on time. Failing to have the appropriate permits and licenses can result in fines or even business closure.
Luckily, most municipalities have online databases where businesses can check to see what permits and licenses they need. Business owners must stay current on these requirements, as they can often change.
- Insurance Documents
Insurance documents include the insurance policy, proof of insurance, and any other related documents. These documents can help expedite the claims process and ensure you are properly compensated for damages.
Keeping track of all payments made to the insurance company is also essential. This includes both premiums and any claims paid out. By keeping records of all expenses, you can ensure you are not overcharged and get the best possible rate on your policy.
Businesses need to keep accurate and up-to-date records. By doing so, owners can ensure their business is running smoothly and staying organised. If you are just starting a business, make sure to keep these records to avoid any potential problems in the future.
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