Today I am going to write about the importance of setting up a company records book.
Record keeping can be one of the most complex and time-consuming tasks for any business owner. Many businesses fail due to incomplete or inconsistent documentation. In recent years the importance of consistent record keeping has been highlighted by judges and juries that hand out severe punishments to major companies for mishandling their records. Understanding the records that are necessary for maintaining your company can help you avoid the pitfalls that can destroy your business.
Everyone in business must keep records. According to the IRS, good record keeping will help you in many ways. It will help you monitor the progress of your business. Records can show how your business is improving and what changes you need to make.
Record keeping will help you prepare financial statements, which include income statements and balance sheets that can help you in dealing with your bank or creditors.
It will help you keep track of deductible expenses that you may otherwise forget by the time you prepare your tax return. Complete records will also help you support the income, expenses, and credits you report on your tax return.
You must keep your important documents available at all times for inspection by the IRS. A complete set of company records will help explain the items reported and will help speed up the examination.
If you aren’t in the habit of keeping accurate and consistent sales records, you should start now. No more writing receipts on the backs of envelopes. No more writing expense records on napkins. Most standard record keeping documents are just a click away on dozens of Internet sites. In this digital age there is simply no good reason for not keeping immaculate business records. Knowing, to the dollar, how much revenue is coming into your company is not only a good idea for you; it is also the law for tax purposes.
It’s not all about income though. The other side of the coin is expenditure. How much does it cost to keep your business running? From pens and pencils to payroll, every dollar that goes out needs to be recorded as carefully as those coming in. Again, this is mainly for tax purposes, but it can also help you find ways to save money. If you know where your money is going, it makes it easier to cut back and increase your bottom line. There are numerous tax write-offs available for the expense of running your business, but if you can’t prove what those expenses are, you can get into trouble for claiming them. Accurate records make it easy to justify those deductions to whatever agency may come asking.
You should be logging just about everything you do in the normal course of business. Corporations must draft and adopt bylaws. Limited liability companies should draft and adopt an operating agreement. These very important documents will govern how your business operates.
Your company should hold meetings annually and when special circumstances arise that require major decisions. You must keep minutes of these meetings, whether they are shareholders or directors meetings for a corporation or member or manager meetings for a limited liability company. Meeting minutes can be given to each of your employees to help make sure that everyone is up to speed and on the same page.
Before you hold these meetings you will need to send notices to key personnel who are required to attend. These personnel can waive notice or give their consent in lieu of having a meeting. The person who sends out the notices is required to complete an affidavit of mailing.
Resolutions should be drafted and adopted whenever something requires a major decision, such as leasing or buying property, opening a bank account, hiring employees, retaining an attorney or accountant, or borrowing money.
All of the above mentioned documents should be kept in an easily accessible company records book. Some are required while others just make good business sense. Pick a system that fits your needs and is easy to use. No matter how you decide to keep your company records, consistency is the key to doing it right. Sloppy record keeping makes it difficult to keep track of important information. Your records should back up every document you send to a government agency. If anyone comes looking for those records, you should be able to provide them immediately. This will save you time, and possibly, the aggravation of a formal audit. In the event of an audit or litigation, accurate and consistent documentation could make all the difference in protecting your company.