Business Records the Painless Way - First Capture the Information

Keeping records for a business, even a small one, can be an overwhelming task. And at the end of the year is too late to start. I know, I'm in the midst of trying to sort out all of my business records so I can figure out my taxes. But I'm not in as much trouble as I thought, because I followed my own advice. I have written about creating a business record keeping system before, and I'll share it with you over the next few posts.

Capture Everything
The first, and probably the most important, task you have is what I call CAPTURE. That is, you must gather up the records. If you don't capture the records, you won't have anything to substantiate to the IRS, and you won't be able to take those deductions and credits.

What to Capture
Here is a quick list of records to capture:

• Income/Receipts
  Keep all deposit slips (and be sure to note who the checks were from). Keep register tapes and credit card charge slips from customers. Keep invoices you have sent out. Keep all accounting records from vendors.
  
• Purchases and Recurring Expenses
  Keep all bank and credit card statements, canceled checks (use duplicate checks!), and credit card slips or receipts from in-person purchases. Keep all invoices and other receipts. And don't forget to use petty cash slips.
  
• Travel Expense
  Keep a log of all travel by car and receipts for all expenditures for air travel, lodging, and meals.
  
• Assets
  Record all information about business asset purchases, including setup and training; keep track of maintenance and other other expenses for use of the asset, and don't forget depreciation.
  
• Employment Taxes
  Keep all employment tax records for at least four years.

How to Capture
I work on the KISS principle for this stuff. That is, Keep it Simple and Safe. No matter how small or large your business, you can capture records painlessly:

• Get a large container (a box will do, or one of those plastic file folder holders from the office supply store) and a bunch of cheap file folders.
  
• Create as few categories as possible. Use the five categories above, for example. Don't worry about getting things into a specific detailed category. All you really care about is the capture at this point; it really doesn't matter how many or how few folder you have. I have one folder for income, one for expenses, one for bank statements and credit card receipts, one for travel, one for asset purchases, and one for outside services (independent contractors). (I don't have petty cash or employment taxes.)
  
• Keep the file folder system next to the place where you sort your business mail, so all you have to do is take it out of the envelope, note what it is about, and capture it in the correct folder. All in one smooth motion. No wasted effort.
  
• Make notes on statements. The only thing I take any time with is the bank account statements and the credit card receipts. If there is no detail available on deposits or receipts, I make a note of who the income came from and who the check was written to.
  
• Capture asset paperwork. If you buy an asset during the year, capture the paperwork in the "asset" file.
  
• Capture travel paperwork after every trip or every month. For travel, make a separate file and dump all receipts (don't forget tolls) and mileage logs into a file folder.

Finding a simple system that will capture the information you will need later if essential. You can't deduct it if you can't find it.

Next, capturing all that online information....