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Keeping Good Records

Most business owners understand the need to keep good business records.  The problem is they don’t always know how to set up an easily maintainable system. Those who do may use accounting software, excel spreadsheets, accounting ledgers, or hire a bookkeeping company.  Others with less streamlined systems might keep receipts in a shoe box and sort them out at the end of the month, or in many cases, the end of the year. 

While most people are good at filing receipts and expenses somewhere, not having a dedicated bookkeeping system creates problems. It’s easy to forget something, and it’s impossible to know how a business is doing until financial information is recorded and analyzed.

Also, as time passes it becomes increasingly difficult to rely on memory if things don’t add up.  By forgetting to enter sales and expenses, businesses won’t have an accurate profile of how the business is doing and owners may also miss out on valuable deductible expenses that will help them pay less tax. 

The most accurate way to record activity in a business is on a regular basis – if not every day or once a week, at least once a month. 

How to Keep Records

Some businesses choose to purchase basic accounting software. The two most common programs for small businesses are Quick Books and Simply Accounting.  Most programs allow you to enter expenses when they occur, track your sales on a regular basis, manage employee payroll, and keep track of other government remittances such as payroll deductions, HST, and corporate taxes.

For business owners who don’t want to use an accounting system, setting up spreadsheets in excel is another way of tracking receipts and disbursements. 

Benefits of Keeping Good Records

The following is a list of five benefits of keeping accurate, timely records.

Benefit #1 – Maintain a Timely Snapshot
Keeping good records allows you to monitor the health of your business.  If all receipts and cash disbursements are recorded, you’ll always have an accurate snapshot. This comes in handy when you’re looking for a loan from a bank, exploring the possibility of selling your business, or when you want to make an important decision that will impact your business.

You’ll know things like:

• How much money you have in the bank,
• Who owes you money,
• How much money you owe your suppliers,
• Whether or not you’re making a profit,
• Your monthly sales and expenses
• Where you can trim expenses. 

If information isn’t recorded about your business, it’s impossible to manage it.  By managing it daily, weekly or monthly, you’ll be able to make adjustments based on timely information about your business…before it’s too late.

Benefit #2 – Save Time and Money with your Accountant
If your business is set up as a corporation, you will need to produce annual financial statements and submit an annual tax return.  Even if your business isn’t registered as a corporation, you’ll still need to know your business income to file your income tax return. At the end of the year, if you’ve kept good records, preparing a tax return will be a straight-forward process. If you’re hiring an accountant to do this, you’ll save money by having everything recorded properly.  If not, it could take time and cash to figure out your business activity for the year.

Benefit #3 – Build Relationships with your Suppliers
It’s good to know how much money you spend with each of your suppliers.  By keeping accurate records you may find out that you’re spending a considerable amount of money with one or two suppliers.  With this information, you can approach them for a discount on your purchased goods or services or ask for improved service.

Benefit #4 – Manage your Cash Flow
Good record keeping lets you know how much cash you have in your business at all times.  If cash is getting low, you may need to collect on your overdue receivables.  If you have lots of cash, you may want to invest in a new piece of equipment or pay off debt.

Benefit #5 – Because you’re Legally Required to Keep Records
The Federal government requires you to keep all business records for six years.  If called upon by the Canada Revenue Agency for a tax audit, you need to be able to show proof of your earnings from one year to the next.