3 Reasons Why Good Business Records Will Help Your Business
New business owners face a big challenge when it comes to keeping accurate records. Why? Because for many, they are concentrating on building the business – cleaning up comes later. For others, the organization that goes into creating a good record keeping system is hard – it may be something that doesn’t come naturally.
But your business isn’t going to thrive for very long without you coming to terms with the need for good record keeping. Here are just 3 of the many reasons this is a point to stress:
- They keep the IRS happy
- Good records make for good financial statements
- Good records are necessary to get financing
If you have a business and good records, you’ll pay less tax than you would as an employee. Being a business owner is considered to be higher risk than being an employee, and the government rewards those willing to take such a risk with more tax breaks. That’s the distinction for entrepreneur versus employee.
Even though it often doesn’t feel like it, the IRS isn’t an enemy, hellbent on taking everything away that you’ve worked hard to earn. But the IRS (or any other country’s taxing authority) does have a mandate to make sure that businesses stay accountable and don’t try to take advantage of a good thing. Forcing business owners to keep records under threat of losing business deductions and paying higher taxes, as a result, is the stick.
If the IRS comes to your business with a question on a deduction, whether in person, or (more likely) by letter, the way that you answer will tell them a lot. Not having good documentation, or missing key receipts won’t help your cause. Good record keeping is essential to keeping in the good graces of the IRS.
A properly-prepared set of financial statements can tell you everything you need to know about a business, good or bad. Conversely, a confusing set of financial statements can do the opposite. It can tell you that the business owners don’t have the knowledge or expertise to run a venture properly. You know the saying, “Garbage in, garbage out.” That’s especially relevant to financial statements. Unless you have solid, accurate information going in, you cannot pull accurate financial statements out.
Want to grow your business with other people’s money? You’ll need good records to show where the profit and potential is. The first thing a bank or investor will want to see is the financial records of your business. The better your records, the more accurate of a picture they present, and this frequently makes the difference between getting a loan or not.
With the chaotic rush and all the multitasking that is required with owning a business, it’s easy to push good records and bookkeeping to the back burner. However, keeping proper records will ensure that the IRS is happy if they should contact you, will help you grow your business, and will help you to get the necessary financing to accomplish that.
One of our goals with Smart Business Stupid Business was to give you information we wished we’d had in the early days. Like how to make life easier by using effective systems. How to figure out what parts of your role you can streamline or give to other people, without losing control of the operation. How to become a business owner, rather than a self-employed job holder. If these are values you’re looking for in your business, pick up a copy of Smart Business Stupid Business today. It may save you from making common (and expensive) mistakes and help you to free up your time so you can concentrate on the business elements that will propel you forward.
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