Physical Financial Retail Business Record Keeping: Still More Important Than You Think
If you are starting and building your own retail business, there are literally a 1,001 things to do and you certainly have lots of hats to wear. One of those is often part-time accountant, at least until your business reaches the point when you can afford to employ a CPA of your own.
Keeping good financial records is imperative in business. But that does not just mean making sure you keep up with your entries in Quickbooks, but that you take great care of the physical proofs that back up those digital entries in a must as well.
Not only does keeping good physical financial records make it easier to run your retail business, it also makes it easier to get taxes done when it’s that time of year. And it is that time of year right now, making this a great time to discuss this issue. You can’t change things for last year, but as taxes will certainly be top of mind right now it’s a great time to plan to ‘do better’ this coming year.
If your retail business gets audited – and that is a possibility if you file taxes as a small business owner – good physical record keeping can greatly simplify the process, and may even be the one thing that stands between you and a possible tax penalty.
Getting to the point where you can put your finger on a financial file or receipt at the drop of the hat is something that sounds rather difficult; however, with a few simple tips, you can do just that. Once you get your records organized, it is much easier to keep up with the organization.
What Should I Keep?
At a minimum, you must keep any records that show how your business made money and how your business spent money. Income statements, receipts from purchases, and bills paid are some of the basic records you need to keep. In retail , you must keep record of your merchandise sales, your shipping expenses any discounts given to customers and customer refunds.
For purchases, keep detailed records for all the products and services purchased less any vendor discounts. You should also keep detailed payroll records, including the pay you have given to yourself.
You will also need to ensure you have documentation that backs up all of the expense and/or business deductions you claim at tax time. Whatever retail niche you operate in, such things can save you big at tax time, but you have to be able to prove they are legitimate should an auditor require you to do so.
How Long Should I Keep My Records?
All financial records that you use to do your taxes should be kept for seven years. Of course, there are some exceptions to this time frame, but if you keep everything for seven years, you will be safe. One example is payroll items. You are required to keep these for four years; however, with the system you will use to keep track of your finances, it will be much easier to just keep these records with the others until they can all be destroyed.
How Should I Organize My Documents?
First, don’t just toss the documents into a box and forget about them until it is time to do taxes. Instead, get a banker’s box that can hold hanging files. Label these files with some of the most common expense categories you have. Some examples include contract labor, electric bills, charitable donations and basic operating supplies. Any time you spend money on something in one of these categories, file the receipt in the appropriate file.
If you have a lot of documents for each category, you can subdivide the items into months. If you don’t want to have a bunch of files for each category, take the time at the end of every month to organize the receipts. Tally them up and place them in an envelope that is clearly labeled with the category, month, year and total of the receipts.
Because you may need to know the amount of sales tax you paid when you file state business taxes, you should also tally up the sales tax and jot it down.
You can follow the same system for income. If you are using a ledger to document income, simply start each month on a new page. You can tally up the previous month’s information and document it in an index card paper clipped to the corresponding pages for that month.
Once you become accustomed to good physical record-keeping, you will better able to just file things away where they go and maintaining great physical financial records should become much easier and far more efficient, not to mention the fact you’ll be in great shape both at tax time and should Uncle Sam decide to come knocking to discuss your retail business taxes!