Business Financial Records

More than 500,000 small businesses are born every year, according to the Small Business Administration (SBA). Many of those new businesses have the same questions: How do I keep my business finances straight? When should I start keeping financial records? What tools should I use to manage it all? 

Business owners must get control over and understand their finances and make good financial decisions to sustain their business. On top of that, the IRS expects businesses to keep financial records to substantiate the income and expense information reported on income tax returns. 

Here are three steps to help businesses keep financial records:

  1. Segregate Business and Personal Finances 

Open a separate business account to avoid commingling personal and business funds. Don’t wait – open the account as soon as possible. If you can, do it before incurring any business expenses. Apply for a business credit card to avoid putting business expenses on your personal credit card. Separating personal and business finances provides a transparent view of your business progress.

  1. Track All Financial Activity

Maintain a record of all business income and expenses in real-time, or at least monthly. Expenses should be tracked by category, so you know where your funds are going. The IRS does not specify a particular system or format for business records, only that your records are accurate, complete, and provide enough detail to identify the date, amount, and business purpose. Computer software packages purchased online or in retail stores can be very helpful, easy to use, and require very little knowledge of bookkeeping and accounting.

  1. Plan and Monitor

Even without a formal budget, you need to plan for monthly and annual income and expenses. Having a plan for your finances helps to prioritize your business activities and provides a baseline to monitor your progress using your financial records. Didn’t meet your plan? Don’t see it as a failure; it’s an opportunity to assess and adjust your activities.

Every business is different, but they all have one thing in common – they can’t make good decisions without getting control over and understanding their finances. Keeping financial records is essential. Paying a qualified and experienced professional to help with recordkeeping is a great option. But if that’s not in your budget, taking these three steps will help you feel confident about your financial records and to satisfy the IRS.

The IRS has help for new (and not-do-new) businesses to keep their financial records. Here’s the link to why you need to keep records – Here’s the link for assistance on how to keep those records –