So many new, and not so new, business owners are confused about keeping records sometimes to the point of being paralyzed into inaction. This two part post will answer your questions and give you the confidence to get going on your business. After all, what’s sexier than someone doing something that they love and believe in?
Why Should I Keep Records at All?
Good Question! You can certainly pursue your business idea without giving much time or thought to the subject of record keeping. However, your chances of success are much slimmer. The truth is that businesses that have a systematic method of keeping track of important information are much more likely to succeed.
A financial record keeping system allows you to understand and act on changing conditions in your business. Your failure to see a downward trend early and correct it can lead to a disastrous end. On the up side, seeing positive trends and capitalizing on them will help you make the most of your business idea.
How About the Internal Revenue Service?
Ah, the Internal Revenue Service (IRS). Many business owners make the mistake of thinking that bookkeeping is to satisfy the IRS. This is simply not true. Any system for records and financial information should first and foremost provide the owner of the business information necessary to properly run that business. Any other use is secondary.
Actually, the IRS does not require that you keep your records in any particular fashion. The government requires that you report all taxable income and properly pay the taxes due on that income. Further, you are required to keep records that will support the income and expense items reported. In some cases, taxpayers are required to use particular methods of reporting income, but these cases are generally for businesses with revenues in the millions.
As long as you use a system that allows you to properly report your income and expenses and you are able to support those figures, your system passes muster with the IRS. There is no need to fear the IRS, but a healthy respect is a good attitude to cultivate.
In the next part, we’ll talk about the ONE thing you must do and a few others that are nice to have in your basic records. In the meantime, if you’ve got a pressing question or problem, drop me a note or post a comment and let’s get to work on it.