Recordkeeping is an essential component of a successful small business. The benefit of being able to “see the big picture” of your business’ operations and cash flow, allows you to make decisions more timely and helps to prevent any large problems before they occur. Additionally, historical data from previous years can be compared to the current year, enabling you to anticipate future sales and obligations. The following 3-part series discusses key areas of recordkeeping, the requirements of a recordkeeping system, and how to implement a computerized recordkeeping system.
Part I: Key Areas of Recordkeeping for a Small Business
There are many elements that are recorded in a business, such as accounts receivable and accounts payable, however two elements that can have the greatest impact on a small business are inventory and payroll. The following describes the importance of each to a small business and why accurate, updated recordkeeping is so essential.
Inventory: While it is imperative to have enough inventory on hand to be able to deliver goods to customers, it is equally important to not have too much inventory. An excess amount of inventory represents money that could be spent elsewhere, whether it is for paying suppliers or for purchasing equipment. Additionally, if you have excess inventory, you are more likely to run into the problem of it becoming obsolete, thereby resulting in a loss of income.
Payroll: For most small businesses, paying employees can be one of the largest expenses. Additionally, payroll requires accurate recordkeeping, as there are taxes collected by the state and federal government, worker’s compensation laws, and wage/hour laws to abide to. If records are not correct, the taxpayer may risk penalties from the IRS.
In our next blog post, we will talk about implementing a computerized recordkeeping system.
Jessica Taylor, Associate Accountant
Davis & Hodgdon Associates, CPAs