It is a good rule of thumb to keep certain documents longer to avoid complications…
Owning a business is hard work. It isn't a job, but it is your life and you have to make every effort to eliminate failure. Unfortunately, where many business owners fail is not how much effort they place on their business, but rather inaccuracy of records.
It is essential that business managers understand the repercussions of mismanaged records and how they can avoid profit loss and IRS audits with proper record keeping.
If your business provides goods, keeping your inventory stock levels up to date are the only way to prevent mismanagement. This can take extensive time to initially set up, or if the inventory has become disorganized. Properly managed inventory can improve productivity and efficiency by reducing the time necessary for allocating and shipping goods sold. If your customer base has a difficult time purchasing from your business due to stock levels not being maintained, then your customers could take their business elsewhere.
Additionally, stock numbers showing higher than the actual inventory can be signs of "shrink" or loss due to possible employee theft, software inaccuracy or other factors. Management helps to eliminate these problems or at least help business owners find and solve problems.
Avoid these common inventory management mistakes:
- Lack of organization - leads to mistakes in shipping, customer wait times, etc.
- No inventory tracking
- Poor forecasting for the future
- Inventory counts are not conducted
Retaining payroll records is important for businesses with employees. Paying your employees requires managing withholding's from Federal, State and Social Security, among other deducted benefits like health insurance and 401-k plans. As a general rule, business owners must hold onto the payroll records for each employee for 4 years from the date of a specific years income tax submission.
For example, any payroll records for an employee who submitted their 2017 income taxes should be held until 2021.
- Total amounts of compensation
- Dates of payments
- Taxes and other withholding amounts
- EIN - Employer Identification Number
- social security number
- start and end dates for employment
The cost of wages is one of the largest, if not the largest expense a business has. Keeping accurate records of payroll and labor costs can help determine if you have room to offer raises to your employees, thus incentivizing them to work harder.
Business Financial Records
Keep personal and business accounts separate. It is much simpler to make all personal purchases and business purchases from their respective accounts.
Purchasing non business related items with a business account may seem insignificant if you intend to pay the money back, but an accounting transaction must take place in order to properly deduct the expense, and vice versa to account for the funds coming back to the business from a personal account. This is extra work, and the funds could easily be mishandled.
Reduce billable hours from your small business CPA. Most business owners will tell you that having professional assistance is a valuable resource that they can't operate without. CPA's will reduce the headaches of managing finances and will allow you to focus on the task of daily business operations. However, not having an accurate record keeping system can make the work your accountant does much more difficult, and thus take more time to complete.
This is an area that business owners can directly impact the money they spend, thus positively impacting their profit margin.
Organize Your Business Finances with a Raleigh CPA
As a business owner, your time is very valuable and you must manage your time responsibly. Since you're the expert at your business, it's pretty common that the majority of your time be spent on operations, not focusing on accounting practices. Contacting a trusted Raleigh CPA like, C.E. Thorn to provide monthly bookkeeping services and other small business support is a great way to reduce your overall stress and to prepare your business for the future.
Give our team a call at 919-420-0092 or complete the contact form to learn more about how our small business accountants can individually help you!