Staying on top of your financial record keeping can be a challenge, especially when you already have a full plate running your business. However, the benefits of having a strong financial records system is critical. Whether you’re filing taxes or trying to understand your performance, accurate financial statements are key — and those are built on strong record keeping. Score reports that 82% of businesses that fail don’t understand their cash flow. Here’s how to avoid that trap and streamline your process in five quick steps.
Use Software or an Accountant
If you’re going it alone in developing a system for financial record keeping, it’s natural that you’d struggle. There are three easy options that can streamline your process:
- Work with an accountant: Hire an accountant who specializes in small business accounting. They can develop a system that works for you and help you track, record and consolidate your records each month.
- Hire a service: Increasingly, there are combo service-and-platform solutions that offer small business accounting as a recurring service. Bench.co and Xendoo are two popular options.
- Use software: If you prefer to manage your accounting internally, consider leveraging a solution like QuickBooks or Freshbooks. Manage billing, expenses and compiling your full profit-and-loss statements in one platform.
Implement a Month-end Close Process
Falling behind is the death knell for reliable financial record keeping. Implement a month-end close process where you submit all expenses, pay your bills, capture receipts, and reconcile accounts.
Doing this every month gives you real-time visibility into your financial situation and highlights issues to address before they become urgent problems. One strategy that can speed up the process is using an expense management app, such as Expensify or Wave.
Expense Management: The Key to Profit and Taxes
As a small business owner, deducting the business expenses that keep your organization running is crucial. It helps you really understand your profits and only pay the taxes you owe. However, every expense must be fully documented during that process.
The IRS has strict record keeping standards about substantiating any expenses. Record each expense, and retain two documents: a receipt showing what the purchase was for and confirmation that you paid it. For example, if you pay a vendor for a specific service, retain the receipt that outlines the provider, service and totals. Make sure you also keep proof of payment like a canceled check or credit card statement.
Using your car for business can be a significant expense. However, tracking those expenses and capturing them on your financial statements and tax returns gets complex. Every trip must be logged, and then substantiated with other documents that show mileage throughout the year to separate business mileage from personal mileage. Consider automating the process with an app such as Mileage IQ. With these tools, simply download the app to your smartphone, and it will track the miles you drive. You add trip details directly into the app, and then have all the data on hand to the strictest reporting standards in case of an audit or future questions.
Use a Business Expense Template
When you work for a corporation, you submit expense reports to get reimbursed. These expense reports show the receipt, business justification and payment information for each purchase. Once they’re approved by management and accounting, you’re reimbursed.
Using a business expense report approach for your business can streamline financial record keeping in your own business. Create a template that fits your needs and records the essential details for each expense: the date, vendor, expense description, amount, payment type and business purpose. Jot down a few details about how you used the expense or how it relates to your business for later reference.
It’s important to have a plan for your financial records management. Not only does it give you deeper visibility into how your business performs, but it makes the financial management of your enterprise fast and easy. Whether a question arises regarding a business expense or you need to quickly apply for a small business loan, having your records in order allows you to quickly complete everything, and then get back to what matters most: running your business.