Many activities are involved after starting a business, but record-keeping may not be a significant concern. It’s one of the most overlooked aspects of a business. Proper record keeping will make business owners’ lives easier when dealing with the taxman and helps them evaluate their financial position.
Even if one is operating the business as a hobby, there’s a need for proper record management. In this post, we will focus on what business owners need to know about keeping accurate records.
Use the Separate Entity Concept
The separate entity principle requires bookkeepers and business owners to maintain records distinctly from the business owners’. It’s essential to ensure there are different accounts to deposit business income and personal finances.
The separate entity concept helps business operators to keep track of their business finances. If they decide to use business money or stock for personal reasons, they should record the entry as a withdrawal. This will help them develop more accurate financial records that reflect the performance of the business.
Adopt a Record Management System
It’s advisable to ensure to maintain records of all business transactions. Bookkeepers can record them manually on paper or use a digital record management system.
Recording business documents electronically ease the accessibility of valuable data and information. The system will also organize, control, review, and update the files to ensure accurate records.
Comply With Record Management Regulations
Proper record-keeping allows entrepreneurs to easily relate with tax authorities and keep up with record retention regulations. The department of labor (DOL) and international reporting standards (IRS) hold record retention mandates for up to 6 years. This means that businesses have to preserve records in the best condition possible.
Records like business tax ID, business certificate, and tax-exempts remain relevant for as long as the business is running, so it’s essential to keep them close.
Backup Records
Natural disasters and data breaches are so rampant in the modern business world. It’s advisable to secure and store files in extra hard drives or cloud storage.
Cloud storage lowers the risk of losing valuable business data. However, it would be best to use a strong password to prevent malicious people from accessing sensitive data like employee’s social security numbers (SSNs).
Understand the Record Lifecycle
Every business record goes through a series of events: collection, classification, correction, storage, backup, and disposal. Once business owners understand these phases, they will be a step closer to proper record management.
Understanding and monitoring data is a great way to run an efficient business. With the tips mentioned above, business owners have more than they need to maintain proper business records. For more information, consult with experts like Woodward & Co. Business accountants.
