There are advantages for those who take the time to plan, organize and maintain business records. A well-managed recordkeeping system:
1. Provides a professional orientation to clients and business associates. Vendors, bankers and customers are affected by the ease in which they can transact business with you. Problem resolution, efficient order processing and prompt payment of bills progress much smoother.
2. Tracks the progress of your business. Financial information is basic to sound decision making. Whether you work with an accountant or draft your own progress reports, the dollars and cents of your operation will dictate the future growth of your business against your forecasts.
3. Helps determine the best use of your resources. Maintaining files of business transactions associated with producing your goods or services can reveal what raw materials are most cost-effective, what vendors are reliable and economical, etc.
An effective recordkeeping system is reliable, accurate, consistent and designed to provide information on a timely basis.
There are time-saving systems that provide simplified records, usually in book form. One example of these copyrighted systems is "one write." In this system, when you write a check, it goes into the system and simplifies keeping expense records and preparing tax records. These systems are available at office supply stores. Look for bookkeeping or payroll systems in the Yellow Pages.
Many software programs for bookkeeping/accounting on your PC are designed with the small business owner in mind. Several of these are very "user friendly", efficient, affordable and worth consideration. Talk to other business owners and accounting advisors for their input as well.
For small or part-time businesses, the IRS Form -- Schedule C may be the starting point for organizing records because it allows the entering of records by line title or number.
Business owners should seek the advice of an accountant who will provide assistance with taxes, budgets, credit, cash flow and management decisions, as well as recordkeeping.
Minimum Records Required
You can maintain many records to aid you in running a profitable business but you must maintain records for:
Equipment
Accounts Receivable and Payable
Finances
Payroll
Accounts Receivable Control
Make sure that credit is warranted before you grant it. If you don't know a customer who asks for credit, use a simple form that requests name, address, telephone number, place of employment, bank and credit references, or use a credit reporting service to determine if they are a good risk.
At the end of each month, "age" your Accounts Receivable. List accounts and enter amount that are current, unpaid for 30 days, and those unpaid for 60 days or more. Find out exactly why all accounts 60 days and over are unpaid.
Pay close attention to customers' complaints about bills. If a complaint is justified, propose an adjustment and reach an agreement with the customer promptly.
If a customer is delinquent, try to obtain a promise of payment on a definite date. If payment is not received on the date promised, ask the customer to explain why and get a new promise.
Payroll Records
Yearly and quarterly reports of individual payroll payments must be made to State and Federal Governments. Each individual employee receives a W-2 form at the year-end showing total withholding payments made for the employee during the calendar year.
An employment card should be kept for each employee showing, among other things, social security number, name, address, telephone number and name of next of kin, their address, and the number of exemptions claimed. A W-4 form should also be on record.
A payroll summary should be made each payday showing names, employee number, rate of pay, hours worked, overtime hours, total pay and amount of deductions for FICA, withholding taxes and deductions for insurance, pension and/or saving plans.
A separate sheet should be kept for each employee. On this individual Payroll Record, list rate of pay, social security number, and so on. Enter amounts for each pay period, covering hours worked, gross pay and the various deductions.
Consider utilizing a payroll service to prepare checks and deposit employee withholdings to the IRS as an economical alternative to hiring an accountant for this purpose. See the Yellow Pages under payroll systems.
Other Records
Other records might be charted and plotted periodically to help you follow marketing trends. For example:
Daily sales by category
Total number of customers
Sales to individual customers
Weekly or monthly of the above
Response to advertised products or service
Number of buyers versus number of lookers
These statistics can be plotted monthly or quarterly and any changes noted. Look for seasonal, annual or outside influences to explain the recorded trends and make adjustments to your business plan.
See that your recordkeeping is done daily. It is good policy to keep records up to date.
Terms and Collection
Before you have made the sale, you should decide what your terms will be:
cash in advance
payment upon receipt (of invoice)
net 10 days
net 30 days
EOM (end of the month)
two percent/10 days net 30 (two percent discount in 10 days or full in 30 days)
Generally, you would be wise to determine what is accepted practice in your industry. Your competitors and your customers have probably set a pattern.
Keep a record of the bank and account number of checks from each new customer. Should you have to go to your local small claims court, this information will speed collection of a judgment. Credit and Collections for Your Small Business by Cecil J. Bond is one of many good practical guides to this important activity. Check libraries or book stores.
