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Record keeping is a critical part of running a business properly. Effective entrepreneurs develop internal systems to organize all financial information. For many businesses, internal systems start and end with accounting software and a receipt box, but it’s also important to keep all paperwork organized and accessible.

Keeping good records of all business transactions helps you create accurate financial statements to assess the health of your business. Inaccurate records make planning meaningless because there is no way to measure your progress. If you need to borrow to grow or plan to sell your business in the future, accurate records are an absolute must. If you allow errors in your accounting system, you’ll end up spending hundreds, if not thousands, of dollars to have an accountant find the errors and correct them before a banker or buyer gets back to you.

You also need to keep good records to minimize your tax burden. Whether your business is taxed at the entity level or its profits flow through owners, managing your tax liability is a year-round endeavor. Receipts must be entered into the accounting system, flagged with any missing information, and filed in such a way that any particular receipt can be retrieved within a minute or two. The submission details are up to you: submitting by business name, product type, date, or any other particular will work, as long as you can find what you’re looking for when you need it.

Record keeping is made much easier through small business accounting software. Every company needs to use one of these programs. The free download versions are very basic, useful only for very small businesses with very few transactions. The best option for any startup with growth plans is Peachtree Accounting. Peachtree is a better choice than the ever-popular Quickbooks for many reasons, but the most important one is that Peachtree is fully GAAP compliant. That is, the way the system works and the way its entries are recorded meet the standards of Generally Accepted Accounting Principles. GAAP compliance means your financials will accurately reflect what’s going on with your business, and as long as you set it up correctly and check all error messages, your financials will require a lot less work to be presentable to bankers.

Paper records such as receipts, contracts, deeds, and purchase orders must be kept in an organized manner. In the spirit of “going green” and preserving workspace, you might consider purchasing an electronic storage system for all paper transactions. These programs allow you to scan the document, add labels and notes, and file in electronic folders for safekeeping. If you choose the electronic route, make sure you have TWO backup systems, at least one of which is online. If your office is completely destroyed, an online backup service will save your business.
 
The amount of time you need to retain business records depends on several factors. The IRS requires a 3-year history of any document used to support an accurate tax return. However, if you are audited for suspected fraud, the IRS can go back at least 6 years. If you file a “bad debt” deduction, those records must be kept for seven years. Also, your insurance company or creditors may require you to keep the documentation longer. If you opt for electronic storage, keeping records is not a problem. If you keep paper files or 3-ring binders, keep anything over three years old, but make sure the boxes are clearly labeled and stored in a safe, dry place.
 
When you’re just starting your business, set up good record-keeping systems. Purchase and install your accounting software early in the process and decide which filing system will work best for you. Record keeping is a critical aspect of business success and deserves your continued attention.

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