Maintaining good financial records is crucial for any business, whether it’s for regulatory, legal, or tax reasons, or simply to help improve and manage your business.
After all, the records will help you evaluate your business’s profitability, maintain positive relations with vendors and clients, and protect your business against lawsuits.
It’s even more important to maintain good fiscal records, which are critical not only for running the daily operations of your small business but also vital when seeking funds from investors or lenders to take your business to the next level. Here’s a list of the financial records you should keep.
This historical record otherwise known as the income statement reveals the amount you’ve made in revenues, the amount you’ve spent, and your net income over a specific period. You can generate income statements for any period although they’re commonly prepared on a monthly, daily, annual, or quarterly basis.
This record informs you whether you’re making money or not and the amount of loss or profit. If structured properly, it can show you the services or products that are selling and where you’re spending excessively on expenses from advertising to personnel.
Furthermore, analyzing this record enables you to establish whether there are periods when your business incurs more costs or generates extra income, so you can plan for surpluses or shortfalls.
This statement provides a snapshot of your business’s financial health, giving a summary of your business’s liabilities, assets, and net worth. In other words, it reveals what you owe and own. The liabilities and assets fall into long-term and current categories on the balance sheet.
You can expect the payment or consumption of current accounts to take place within a year while long-term account balances take a longer period. The most liquid assets appear first on this record and include accounts-receivable and cash balances.
The balance sheet also shows owner’s equity. Bear in mind that the combination of those items enables lenders and investors to evaluate the prospective financial standing of the business.
Cash Flow Statement
This statement records the outflow and inflow of cash. Cash inflows comprise loans, cash sales, and other investments. On the other hand, outflows include expenses paid and purchased equipment.
Remember, this statement merely reveals transactions that have actually undergone monetary completion for investing, operating and financing activities. The record also helps establish whether your business has physically obtained sufficient cash to pay its costs.
This financial record is very important because even though your income statement may be indicating a profit, the business may not be producing cash. Furthermore, the outward and inward cash flow is vital in keeping a business in operation.
Bear in mind that insufficient inflow means that the business will lack money to pay expenses and purchase stock or inventory. As a small business owner, you should report your cash flow on a monthly basis since most small businesses buy inventory and pay expenses on a monthly basis.
Due to the important role this record plays in a business, you shouldn’t neglect to account for and report cash flow. This is particularly true because small businesses usually experience hardship in generating and raising money as they start up.
Income Tax Records
You require good records to facilitate the preparation of tax returns. Remember, the records should support the expenses, credits, and income you report on your returns.
Generally, you’ll use the same records to prepare your monetary statements and monitor your business. When dealing with an IRS auditor, it’s essential to produce the suitable records that support any information you’ve claimed on your return. Otherwise, your business is likely to face consistent monitoring and investigation until you can set up a thorough record keeping system.
Your business’s success will depend on good record keeping practices, which will help you establish your business’s profitability or financial condition. Your business’s financial status is especially important, so you must keep these financial records.
Dailey Bookkeeping Services is a Xero Certified SILVER Partner and a QuickBooks Online Certified Advisor, so if we can help you with your record keeping needs, just give us a call, we would love to help you! The owner, Jacqueline Dailey is a Certified Public Bookkeeper, an Advanced Certified QuickBooks and QuickBooks Online ProAdvisor, a Sleeter Group Certified QuickBooks Consultant and a Xero Certified Silver Partner. We work remotely so we can work with any company located in the U.S. If we can help you with this process or provide you with custom reporting, please give us a call. If we cannot help you, we will refer you to someone who can! Feel free to visit our website at http://www.