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Running your own business can be fun. You wanted a much more fun career than working for someone else for the rest of your life, right?
But the recordkeeping side of your business isn't always fun either. And if you aren't a numbers person, then the recordkeeping side of your business can be a total nightmare!
Unfortunately when you have your own business, good recordkeeping that is done on a regular basis is a non-negotiable. It must be done and it must be done on a regular basis.
The more you get your recordkeeping done on a regular basis, the more efficient you will get at doing it as well.
You should be able to do your recordkeeping in about 5 minutes or less every single day. You can get my formula for your daily 5 minute routine in my course Becoming a CFO, plus everything you need to succeed with your business finances.
You need to save copies of all of your receipts. It helps to keep them all for both your income and your expenses.
Nowadays, almost all of your receipts are emailed to you, so you have them in electronic form.
You can keep these in your inbox, just set up a folder in there to keep all of your receipts in that one folder.
I personally set up a folder for each year. So this year's folder is 2019 Income and Expenses. Then after reviewing each receipt as it lands in my inbox and recording it in my bookkeeping program, it gets stored in that folder.
This way, if you ever forgot to record something in your bookkeeping program, or if you do happen to get audited, it's very easy to find all of your receipts quick and easy.
The requirement for keeping these records for business purposes is 3 years, but it's recommended to keep everything for 7 years.
You also want to make sure you either have access to, or save copies of all of your bank statements for at least 3 years as well. Most banks keep copies of your bank statements in your online account and some banks will still mail you a physical copy every month.
In the case of an audit, your records are what will prove your income and expenses that were reported. You will need to be able to recreate the reports you filed with your records.
Also check out: Most Common Bookkeeping Mistakes to Avoid
It is really important that your business and personal finances are kept separate.
One of the first things you want to do when you start a business is open a business checking account. There are some banks that make you keep a minimum amount of money in the bank in order to have a business checking account, so make sure you shop around when you are getting ready to open your bank account.
If you are going to pay for business purchases with your personal funds, then you really should transfer the money from your personal bank account into your business bank account. This then counts as owner's equity, or money you as the owner have put into the business.
Then later, you will be able to withdraw the money that you have put into your business without tax implications. Once you go over the amount you have put into the business, then tax will be charged on the withdrawals because they now count as your income.
When you have separate business and personal bank accounts and even credit cards, it's much easier to track your business purchases. This way you know where you are spending money and where you need to be cutting back on your business spending.
Also, when you claim that you are a business, the IRS wants to see that your financial activity is kept separate in order to make it easy to distinguish what is business related and what is not.
Plus when you claim you are an LLC, the protections of an LLC start to deteriorate when you co-mingle your business and personal funds.
It's much easier to just transfer money between your business and personal bank accounts, whether you need to add money to the business or you need to pay yourself.
Also check out: Do I Need Separate Bank Accounts for my Business?
Finally take your taxes from frustration, chaos and confusion to calm and organized.
Learn everything you need to know to master your business finances and taxes explained in plain English.
You obviously want to get paid from your business, that is why you started it in the first place, right?
You should set up regularly recurring payments to yourself from your business. By having these regularly recurring payments, you are helping yourself to not co-mingle your business and personal bank accounts as well.
It also makes your business recordkeeping cleaner by setting up regularly recurring payments to yourself.
When you pay yourself on a regular basis, instead of just when you need money, it shows that you are an employee in your own business.
It doesn't matter if you set up the payments to be on a weekly, biweekly or even monthly basis. Just set up regularly recurring payments to pay yourself from your business.
And with these payments you should also be recording the payroll taxes in your business, so that you can easily pay the payroll taxes, either as estimated payments or as payroll tax payments every quarter.
Also check out: Paying Yourself in Your Online Business
You want to use a bookkeeping program like Quickbooks, Freshbooks or Xero to keep track of your business recordkeeping and easily create monthly profit and loss and balance sheet reports.
When your business is just beginning and you aren't making a lot of money or spending much, it is recommended to use a spreadsheet that can help you with keeping track of your business finances.
But once you start to grow, you'll want to switch to a paid bookkeeping program. I don't recommend the free programs because I have personally experienced glitches in these programs that make it hard to make sure all of your bookkeeping is accurate.
Quickbooks is my ultimate recommendation, it is the easiest to use of the three options, and also the lowest priced. You can also see which version of Quickbooks would be best for your and your business, if you are thinking of using Quickbooks.
When you aren't a fan of numbers and keeping track of your money, using bookkeeping software is going to make this process much easier. There is a slight learning curve when this is something that you aren't familiar with. But there are tutorials available to help you understand how to use these bookkeeping software programs and use them for their full potential in your business.
Also check out: What is the Best Version of Quickbooks for Your Online Business?
Business recordkeeping does not need to be painful or stressful. It really can be done in just 5 minutes a day.
Plus when you get your business recordkeeping done on a regular basis, it makes filing your tax return a breeze at the end of the year. Why do you really want to stress so much about your business finances if you really don't have to?
Build a regular business recordkeeping habit, spend 5 minutes a day updating your records, and you'll be well on your way to financial success in your business.
Clarissa Wilson is a financial strategist and online educator who holds two master’s degrees in Forensic Accounting. Also creative and spiritual, she is an intuitive empath and introvert. Clarissa is the host of The Prosper + Profit Podcast, where money conversations occur on a daily basis -- as she believes that money shouldn’t be a taboo subject. After growing up on a dairy farmand learning to work hard for money, Clarissa awakened to a path that allowed wealth to flow easily to her. Clarissa currently lives in Pennsylvania with her two cats.
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