No matter what kind of small business you have, there is one thing that is always true: You need to keep good records. Everyone knows this, but a lot of people do not fully understand what good record keeping looks like. If you find yourself a little bit unsure of what you should do to manage the records of your business, you are not alone. This guide is simple, but it will tell you everything you need to know to get started.
Electric and Physical Record Keeping
The first thing you need to understand is that you should always keep multiple copies of everything. The tried-and-true method is to keep all your physical records, but also create a digital version of them. This is more than simply creating a back-up, although it is quite important to have back-ups in case something goes wrong. If there is a fire and you lose all your digital records, you will be glad you kept electronic records. Likewise, if an electrical surge fries your hard drive, you will be glad you did not recycle your physical records. Most businesses leave the task of creating electronic copies of all the physical records up to the accounting department. If it is done gradually as new records are created, it is a simple and easy task.
One last incredibly important thing to note: Do not keep the only copy of your digital records as a local copy. If the records only exist on your company computer, the loss of that computer means the loss of your records. If there is a fire, for example, it could easily destroy both your physical and electronic records. You should always upload your records to the cloud, which is just another term for online data storage. There are cloud services dedicated to business owners specifically, or you can use the freely available services, such as Google Drive or DropBox.
Physical record keeping is simple enough. The key is to have an organization system so you can find any particular record quickly and easily. However, it basically just boils down to keeping the papers that accumulate from doing business in a safe spot. Electronic record keeping is a little more complicated. Your best friend in this task will be the PDF. This is a special type of file format that is in standard use across nearly all small businesses. PDFs are great for this purpose because they are compact, secure, and easy to use. Unlike most file formats, you cannot edit a PDF without a tool like PDFSimpli. This makes them perfect for record-keeping because no one can easily or accidentally alter them. PDFs are also very compact, being compressed more than most of the alternative file formats. This means you can store a lot of information in a small amount of memory.
The Legal Requirement
It is vital for all small business owners to understand that the IRS does require them to keep certain records. The specific things you need to keep records of depend on what kind of business you have, but you should always store these documents or potentially face legal consequences:
While the specific requirements do vary, the IRS does have some advice about how to keep records effectively. One of the first things you should do when starting a small business is to research the tax requirements for your business type.
How Long You Should Keep Records
This is another tricky question because it varies from one business type to the next, and from one type of record to the next. The IRS has advice pertaining to the length of record keeping too. The general rule is that you should keep all the records for about seven years. This is a very safe practice, although there are some records that you can go ahead and keep for longer or shorter periods of time. When it comes to income records, for instance, it would be wise to save these records indefinitely. On the other hand, the proof of purchase of a machine you do not even have anymore probably does not need to remain in your records for more than four years. Proper record-keeping is important but simpler than you might think.