Financial Record Keeping: Best Practices for Small Businesses

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

This article will suggest six financial record keeping best practices for small business owners to simplify their bookkeeping. 

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.

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.

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.

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. 

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.

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.

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.

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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Choose accounting software that can generate records

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

After scanning your receipts with OCR engines, 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 core. 

The bottom line

Keeping financial records properly 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 is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!

6 Keys to a Successful Business

Millions of people dream about starting their own business, but only a few go further than their thoughts. Many people are unsure of the keys to a successful business, especially when today’s business world is full of unknowns, twists, and turns. 

While there are always procedures you need to follow in your business and industry, there are also certain keys to a successful business that apply to any venture. Check this article to find out what they are! 

Key #1. Know your competitors

No matter what type of business you’re starting or running, you’ll have competitors. Even if there’s no other business offering exactly what you plan to sell, there are likely to be other products or services your target customers use to satisfy their needs. Moreover, other businesses may be doing something right that you can implement in your business to make more money.

To succeed, you need to research the competition and find out as much as possible about what they sell and how they sell it. Competitive research is something you should plan on doing on an ongoing basis, too. 

If you’re running a coffee shop, you can visit your competition’s cafes, ask other customers what they think, and gain helpful information. However, if you’re running a business with much more limited access to your competitors, such as a chemicals company, you can take a different approach to research your competitors. For example, you can consult with a business professional and accountant to go over their financial information, not just what the business presents to the world. 

Key #2. Do market research

Market research is one of the main keys to a successful business. Entrepreneurs should never throw their caution to the wind and start businesses based solely on personal opinion. Business success depends on many factors, with data being one of the most fundamental. And data comes from research. What is the size of the possible customer base, and what are their characteristics? It is important to understand what drives and motivates the buyer personas to target them efficiently.

Key #3. Have a detailed plan

An accurate and precise business plan can help you focus on your goals. You’ll refine your business idea as you create your business plan, and you’ll have a roadmap to refer to before making major decisions. What do you expect from your business? How long will you take to achieve your goals? What is your monthly or quarterly target? 

So, whatever your goals are, write them down and put them somewhere where you will see them every day. Then take each goal and break it down into smaller steps. You can set a certain time to review your plan and mark what you have completed. Having a clear direction will bring you closer to your goals. 

Key #4. Provide great products or services at a reasonable price

In today’s hyper-competitive business environment, your business’s products or services need to be good enough to meet or surpass the clients’ expectations once the customers are there. This is how you turn your customers into brand ambassadors, which is one of the best and most cost-effective ways to get a small business on the map.

The first principle to consider in establishing any new product or service is to determine if it meets an actual, existing need that customers have right now. No product or service can succeed unless it’s somehow unique and superior to its competitors’ products or services. A new product or service must solve a consumer problem or improve the client’s life or job in a cost-effective way.

The safest strategy here is to start with a common product that already has a widespread market and then figure out how to improve it (e.g., provide faster delivery, produce higher quality, or lower the price of the product or service.) It’s a good idea to start with a product or service that people are already using and find some way to make it more desirable, instead of trying to invent a whole new thing. 

The second principle for any business success is offering good quality products or services at a fair price. Your business must have a unique selling point (USP) if it competes with other products or services. It is one or more features or benefits that make your products or services unique, different, and superior to any competitors.

Key #5. Keep your records organized

All successful businesses keep detailed records. Proper bookkeeping helps you know the business’s financial status and what could potentially become a problem moving forward. Knowing this helps you visualize future projections, create strategies to overcome those challenges, and assist in business planning. 

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Most businesses are choosing to store their records physically and digitally. By constantly backing up digital information, especially when it comes to financial data, a business owner no longer has to worry about losing their data. If you choose to keep physical records to ensure that the digital information is correct, keep specific folders for each aspect of the business appropriately labeled and organized so you and anyone in the company can access them easily. 

Key #6. Be consistent

Consistency is a key component of a successful business. Being consistent means understanding that your business will not likely make money immediately, but you still stick with your goals and never give up. Consistency creates long-term positive habits and produces the results you were hoping for so that your business will eventually make some money. 

The bottom line

Once you know the main keys to a successful business, you’ll have a strong foundation to grow your business. 

In summary, to succeed in the business world today, you need to be flexible and have good planning and organizational skills. Being a business owner means being in a state of constant learning and adapting.

Don’t forget to subscribe to the Shoeboxed blog for more helpful entrepreneurship and success stories for small business owners! 

About Shoeboxed

Shoeboxed is a receipt management application that turns your receipts and business documents into a digital format in just one click by taking a picture straight from your smartphone or scanning a pdf. It automatically extracts, categorizes, and human-verifies important data from your receipts so that you can go over and check your records anytime with ease. Shoeboxed ensures you will always have your receipts securely stored and ready for tax purposes.

Access your Shoeboxed account from your web browser or smartphone app. Stay audit-ready with Shoeboxed for FREE now!