Books and Records
When you decide to start a business (or have already started one) you want to write off your expenses. The Billion dollar question is how exactly is that done? Most people think that buying a copy of QuickBooks is going to take care of that. Unfortunately, QuickBooks is only a tool to be used in the construction of your “Books and Records”. This post will lay out 15 simple steps to making sure you are getting all of the business write-offs you’re entitled to.
Why You Need Bookkeeping
It’s every business owner’s legal requirement to maintain “books and records” and bookkeeping is the main process used to create them. A good bookkeeping system will enable you to produce timely financial information that will help you operate more efficiently and hopefully more profitably.
- Read IRS Publication 583 Starting A Business and Keeping Records.
- Understand that financial knowledge is financial power.
- Remove any of the fears and doubts that may be blocking you from the addressing the financial aspect of your business.
- Take full responsibility for the bookkeeping process and ultimate financial condition of your business.
- Know your end game by reviewing the tax returns and financial reports that are generated from your bookkeeping process.
- Maintaining books and records is a legal requirement.
- Proper bookkeeping will help you make sound business decisions.
- As a business owner you are ultimately responsible for keeping your books and records.
- Your books and records must clearly reflect what has been reported on your tax returns.
- When you sign your tax return you are attesting under penalties of perjury that all the information included on the return is true, accurate and complete.
- Know and understand your financial end game.
Bookkeeping is a process designed to compile business transactions into a set of organized financial reports.
- Understand that each and every transaction conducted in your business must be reported on your tax return.
- Identify the 6 key transaction components needed to record each transaction:
- Think of the process that will be required to insert the transaction information into your financial reports and tax return.
- Identify where the transactions will be reported on your financial reports and tax return.
- Bookkeeping connects your transactions and original documents to your financial reports and tax returns.
- Your books and records tell the documented story of your business and bookkeeping helps put it in order.
- Bookkeeping is the step before accounting.
- Every business transaction must go through the bookkeeping process.
Producing an accurate Balance Sheet and Income Statement is the ultimate purpose in the bookkeeping process. There are many facets to bookkeeping and how it occurs. Determining exactly what your short term and long term objectives are will be essential in deciding what role you take on when doing your own bookkeeping.
- Meet with your accountant and determine what reports are needed and when.
- Determine if you need real time, monthly, quarterly or an annual accounting of your transactions.
- Create a list of goals and financial benchmarks for your business.
- Determine what information you need to compare your results against your goals.
- Learn about the Balance Sheet and Income Statement, your key financial reports.
- A strong bookkeeping system is essential in producing key financial reports and information about your business.
- Your key financial reports are the Balance Sheet and Income Statement.
- The Balance Sheet is a snapshot of the financial status of your business.
- There are three main sections of a Balance Sheet: Assets, Liabilities and Equity.
- Assets & Liabilities are segregated into current and long term.
- Current is due or payable in less than one year and Long Term is due or payable in more than one year.
- The Income Statement shows the results of your operations for a specific time period.
- There are two main sections of an Income Statement:
Working With Your Accountant
You must retain the services of a good proactive small business accountant experienced in working with startups and businesses. Your accountant should work with you throughout the year opposed to meeting you once a year at tax time.
- If you have an accountant determine if he or she can provide the hands on guidance needed to create a good bookkeeping system with appropriate oversite.
- If you need to find a new accountant create a profile of the type of person you would like to work with.
- Interview a few accountants and determine if they provide the kind of hands on guidance you need to keep a solid set of books and records.
- Ask your bank manager to refer a good small business accountant.
- You need a pro-active accountant to help guide you and your business.
- A proactive accountant will assist you in creating a solid bookkeeping system.
- Stick with a sole practitioner or small accounting firm. Many larger accounting will assign small business accounts to inexperienced staff members.
- Proper tax and business planning is a year round event, not to be conducted during tax preparation time.
- Take careful steps to retain the right accountant for you and your business.
- Find an accountant that is organized and will provide close personal attention.
The Role You Play In Bookkeeping
Careful consideration must be made when deciding on your role in the bookkeeping process.
- Review the volume and complexity of the transactions that need to be recorded.
- Make an honest assessment of your skill set and determine what aspects of the bookkeeping process you should handle directly.
- Determine the value of your time and compare it to the cost of hiring or having someone else do it.
- Segregate the bookkeeping tasks, such as data entry and record keeping for easy delegation.
- Delegate those functions to staff or individuals in the best strategic position to complete the task efficiently. IE: Have the individual spending petty cash organize the receipts and fill out a petty cash report.
When You Should Do Your Own Bookkeeping
- Doing your own bookkeeping does not mean doing it alone.
- It’s easy to segregate bookkeeping tasks into record keeping, filing, data entry, reconciliations, review and oversite, etc.
- You do not have to handle all the bookkeeping task, only the ones that make financial sense taking your time into account.
- You should never be completely hands off when it comes to the bookkeeping process.
- Bookkeeping is a team effort.
Hope this helped! Parts 2 and 3 will be up shortly. As always I welcome your comments and suggestions. Thanks! Joe