Simple Record Keeping: 6 Best Practices for Small Businesses

Running a business is never easy, but keeping track of business finance can sometimes be the hardest part. It’s also the most important.

Maintaining precise records of all financial transactions keeps a business compliant with regulations and standards, but more importantly, keeping accurate records of all business income and transactions is critical for smooth tax preparation.

Despite what many may think, some of the best financial record-keeping systems are those that are simple and easy to maintain.

Today, we’d like to show you 6 simple record-keeping best practices for small business owners that will help you streamline your bookkeeping and keep your business documents in order! 

See also: Bookkeeping Resources: 45+ Courses, Tools, Sites, and More!

What kind of records should a small business keep?

Whether you manage your records with a software program or a manual form of record-keeping, it is important to know which types of records you should keep.

Documents like receipts, gross receipts and small business expenses, debits, and credit statements should be stored for easy retrieval.

The table below categorizes the three types of documents to keep as a small business owner: 

6 simple record-keeping best practices for small business owners

1. Incorporate a good document management system into your business

As your business grows, then and now, you’ll need to keep track of an ever-increasing number of business documents and files. Instead of having paper records in your drawers and clogging up your desk, try going paperless so you can access your records easily, at any time, from anywhere.

You can set up a digital document management system to help keep track of all your business documents. It’s even possible to install a document control system that determines how often documents are reviewed and updated.

This type of management system protects your sensitive documents with passwords and verification, can be easily backed up to prevent loss or damage to documents, and can be semi-automated to ensure everything is kept up to date.

2. Back up and secure your business records

There are many ways in which our important records can be lost or damaged, like natural disasters, electrical fires, or even malicious intent. Therefore, having backup copies of your important documents in a safe place ensures you won’t lose them if something bad happens.

Be sure to store your records in at least two places. For example, you could have your important documents on paper and on a hard drive, or on one of the previous and on the cloud. The more copies you have, the less chance there is of you losing the documents.

Remember, if you have more than one copy of something, keeping each copy in a different place is essential. That way, you’ll still have the others if something happens to one of them.

Storing your important documents in digital form is a good idea as it protects them from being lost, damaged, or destroyed. However, storing records digitally also increases the risk of data breaches, which can result in them being stolen or seen by the wrong eyes.

So be sure to secure your online business records with a strong and unique password and enable two-factor authentication. Also, be wary of who you give access to.

3. Understand the lifecycle of business records 

Business owners must keep some important financial documents for a certain period of time for tax filing and auditing purposes. It is important to ensure that all retention and disposal schedules are followed correctly for each type of record. 

The following are other documents that are essential to keep, and the timeframes for keeping them are as follows.

a. Longer than a 7-year period

You must keep your tax records for at least seven years. This will ensure that you have all the information you need in case of an audit. The IRS mandates 3 years for the statute of limitations for an audit.

However, in some situations, the IRS can go back six or seven years to audit your taxes. The time limit for filing a state tax return varies from state to state, so work with a tax professional to get tax forms and determine the time limit in your state.

You should also keep records of any business transactions that support your income statement and the information on your taxes for up to seven years. This includes your W-2 and 1099 forms, receipts, and payments.

Additionally, keep records of any assets you own, like receipts for home renovation work, for as long as you own those assets.

b. One-year period

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

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

Also, don’t throw away any records related to your current year’s tax preparation or any unresolved health insurance premiums or disputes for at least a year.

Most financial institutions, including credit card companies and banks, send customers electronic statements, so keeping paper versions on hand may be unnecessary. However, if you do want to keep a copy of those records, you can digitize them by scanning them with a receipt scanner or a document scanner before discarding the original paper documents.

This video compiles a list of documents you will need to file your taxes. If you’re looking for information on how to maintain documents as an independent contractor, check out “7 Useful Documents Every Independent Contractor Should Keep.” 

c. Less than a year

There are some types of documents that you won’t need to keep for very long. For example, you don’t need to worry about keeping receipts unless they’re related to something important, such as: 

• Insurance claims
• Your tax returns
• Product warranties

You can typically dispose of your monthly bills either after you’ve paid them or once they’ve been reflected on your bank transaction statement. If you need to check up on anything later, see if you can access past invoices through your online account.

Many service providers store records of past bills and invoices online for some time. This period could range from a few months to a number of years.

4. Start a new digital file for your records after each year

Creating a new file at the beginning of each year is a helpful way to save time and organize your information. This will make it easier to delete records you no longer need, like when the seven-year retention period has ended.

It also helps keep your records in a simple and easy-to-use format. That way, you won’t find yourself going through years of business transactions to find the one file you need.

5. Keep records of transactions for bank reconciliations

Bank reconciliations help small businesses find mistakes in their records and better understand their financial situation.

It’s a good idea to check that you have records for everything your business does. Making all your purchases and payments through a single business bank account can make it a lot simpler to keep track.

Some accounting software allows users to add documents to each transaction. This way, anyone who looks at your books can see the related records.

Also, compare every transaction in your accounting software to your records when you’re doing your monthly bank reconciliation, just to make sure it’s all there.

See also: Small Business Finances 101: 6 Dos and 9 Don’ts

6. Choose accounting software that can generate records

Today, there is a variety of software programs that can create reports from customers’ invoices.

Shoeboxed is a receipt scanning and expense management app that allows freelancers and small business owners to keep track of their business expenses in a simple way. This app can help you with your reports by doing some of the work for you.

After scanning your receipts, Shoeboxed will create reports that you can send for approval immediately. Shoeboxed saves small business owners time and effort by automating certain simple but time-consuming tasks, leaving the business owner more time to spend on more important things.

See also: The Accounting Cycle Explained

Watch this video on “Bookkeeping Basics for Small Business Owners” from Bench Accounting for more tips on bookkeeping best practices!

Frequently asked questions

See also:

• The Small Business Accounting Checklist for 2022 [Infographic]
• Monthly Bookkeeping Checklist: An Easy Guide
• Tax Checklist 2022: What to Know, Do, & Prepare for Tax Filing Day
• Business Expense Tracker Apps: 8 Money-Saving Reasons to Start Today

Bonus infographic: 6 best practices for small businesses on simple financial record keeping

The bottom line

It can be difficult to keep track of your finances in the beginning, but doing so is essential for maintaining a healthy business. Even if you don’t have an accounting background, you can still run your business smoothly if you follow some simple financial record-keeping best practices. The most difficult part of financial record keeping is getting all the information one needs. 

Shoeboxed can help! 

Shoeboxed is the complete receipt tracking and expense management solution for small business owners who are looking for an expense-tracking app.

About Shoeboxed!

Shoeboxed is a receipt scanning service with receipt management software that 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 within the US). Use our receipt tracker + receipt scanner app (iPhone, iPad and Android) to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email address.

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 today!