Financial Record Keeping: 6 Best Practices for Small Businesses

Discover 6 best practices for financial record keeping for the small business owner. Simplify your bookkeeping with this down-to-earth guide.

Six Financial Record Keeping Best Practices

Financial record keeping is essential for smooth tax preparation. Keeping the process of recording all financial transactions thorough, accurate, and precise helps a business succeed and meet regulations and required standards of operation.

Today, we’re discussing 6 financial record keeping best practices for small business owners to simplify their bookkeeping! 

1. Incorporate a good document management system into your business

As you grow your business, your business documents and files expand, too. Instead of stacking your desk and drawers with piles of paper, try to go paperless so you can access your records easily, at any time, from anywhere. 

You can then implement a digital document management system to organize all your business documents. Then set a document control system that specifies how often to review and update documents.

2. Back up and secure your records

We live in a time where data breaches and natural disasters are rampant. Take time to back up and secure your records to avoid catastrophe. Whether you store your records on paper or a hard drive, remember to back them up in at least two places. 

Digitizing all your important documents is also a good idea as it protects them from being lost, stolen, or destroyed. However, storing records digitally increases the risk of theft. So when you store your business records online, secure your account with a unique and strong password, and enable two-factor authentication.

3. Understand the lifecycle of records 

Every record will have its own lifespan, and some financial documents must be kept for a certain amount of time. It’s necessary to ensure that all retention and disposal schedules are correctly applied to each type of record generated in each department. 

Here are the essential documents you need to keep and the time you need to keep them.

a. Seven years or longer

When it comes to taxes, it’s a good idea to preserve any tax records for at least seven years. The IRS’s audit statute of limitations is three years. In some situations, they can go back as far as six or seven years (e.g., if you underreported your income by 25% or more). State statutes of limitations vary, so you can consult a tax professional to understand your state’s limitations.

You should also keep for up to seven years any records that corroborate the information on your taxes, such as your W-2 and 1099 forms, receipts, and payments. Keep receipts for any assets you own for as long as you own them, such as receipts for home renovation work. 

b. One year

Records that you need to keep for at least one year are the following: 

  • Non-tax-related bank and credit card statements
  • Investment statements
  • Paycheck
  • Medical bills 
  • Receipts for large purchases

If you need to support your current-year tax preparation or have an unresolved insurance dispute, don’t throw away these records for at least a year!

Many banks and credit card companies now provide electronic statements, so it’s not necessary to keep paper versions on hand. However, if you still want to keep a copy of those records, you can digitize them by scanning them with a receipt scanner before discarding the original paper documents.

c. Less than a year

Some documents do not need to be kept in your home for an extended period of time. Don’t bother about keeping receipts unless they’re related to:

  • Product warranties
  • Your tax returns
  • Insurance claims

You can throw away most monthly bills after paying them or after they have been deposited into your bank statement. If you need to go back to verify anything later, see if you can access past invoices through online account access. Many service providers store past bills and invoices available online for the past few months or longer.

4. Start a new file after each year

Starting a new file at the start of each new year is a simple method that can help you save a lot of time and make going through your information much easier. 

It will also make it easier for you to remove records you no longer need for whatever reason, such as when the five-year retention period has expired.

5. Keep records of transactions for bank reconciliations

Bank reconciliations help small businesses detect errors and better understand their financial situation. It’s also a good opportunity to double-check that you have records for all of your business dealings.

Some accounting software allows users to attach documents to each transaction, so anyone who opens your books can view the associated record. It’s good to match every transaction in your accounting software to a record during your monthly bank reconciliation. Make sure you have a corresponding invoice, receipt, or contract as you go through your company activities.


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6. Choose accounting software that can generate records

Today, many accounting software can generate reports from customers’ invoices. For example, Shoeboxed is a painless receipt scanning and expense management app tailored for freelancers and small business owners. This receipt app can take over the heavy task of preparing reports. 

After OCR scanning your receipts, Shoeboxed will automatically create clear and comprehensive reports so you can send them out for approval immediately. Shoeboxed can help small business owners save time and effort, allowing them to spend more time on the business’s high-value tasks. 

The bottom line

Keeping good financial records can be challenging at first. Still, as long as you keep these financial record keeping best practices in hand, you’ll be able to run your business smoothly even if you don’t have an accounting background. The most difficult part is collecting the information. After you’ve formed the collecting habit, the rest will be in place. 

Don’t forget to subscribe to the Shoeboxed blog for more helpful accounting and bookkeeping knowledge and best practices for small business owners! 


About Shoeboxed

Shoeboxed supports multiple methods for receipt capture: send, scan, upload, forward, and more!

You can stuff your receipts into one of our Magic Envelopes (prepaid postage in the US). Use our Shoeboxed app to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email account.

Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.

Join over 1 million businesses scanning & organizing receipts, creating expense reports and more—with Shoeboxed. Try Shoeboxed for FREE now!

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