Maintaining records allows you to gain perspective on your company and provides a basis for business decision making. The level of documentation and systems that you invest time and money into utilizing will depend on your level of business development and financial sophistication.
Business owners and investors in earlier stages of business often do not keep records or have very poor recordkeeping systems which exposes their business to an unnecessary level of risk. The business owner or investor does not know how their business or investments are performing throughout the year and they cannot properly substantiate deductions.
The first step to implementing a proper system is to develop a better system for documenting all income and expenses and maintaining them properly. Business owners and investors can do this by first establishing a separate business bank account and following best practices detailed in an earlier article regarding commingling funds: https://www.camusocpa.com/finance/commingling-funds-a-cpas-perspective/#/
All payments that are made to vendors or creditors should be paid by cash or credit to maintain a document trail to track payments. All receipts and miles driven for businesses should be tracked and recorded in apps that allow ease of use and accessibility.
Additionally, before allowing any contractor to perform work for your business, they should be required to complete a W-9. All work and payments that you make should be codified in a signed agreement.
All records should be maintained on a business computer, with two backup versions maintained on the cloud and a thumb drive with a folder hierarchy that allows you to easily find and sort data.
Following the above guidelines is the first step to developing a system that will allow you to gain value from utilizing comprehensive software as your business advances.
After business owners or investors have established and integrated a documentation system they can utilize technology to help organize and file applicable documents. This will allow greater freedom to generate financial information so that you can measure business or investment performance.
At this level of financial sophistication and business activity taxpayers do not need comprehensive automated accounting systems but do need timely and accurate financial information for personal and bank purposes. This can be accomplished through a combination of the use of spreadsheets and banking tools.
Business owners and investors should create separate checking accounts for each business, rental property, or investment that they own.
This streamlines the process of tracking expenses and developing financial statements. Each quarter take the time to analyze and log your income and expenses into an excel spreadsheet, reconcile your bank accounts, and review your financial position with your CPA. https://www.camusocpa.com/contact/#/
In the next article on upgrading your accounting system, we will discuss accounting automation and outsourcing your accounting function: http://bit.ly/CamusoAcctII
All investors, agents and business owners should implement best practices regarding business account segregation and general accounting practices. Maintaining separate personal and business accounts is the first step to establishing foundational accounting practices for your finances.
Camuso CPA PLLC offers a series of services to develop and tailor a first-rate accounting system for your business needs. Reach out to our team regarding any questions about commingling funds or establishing a first-rate accounting system.
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