Behind every successful small business story there's a lot of hard work and, yes, administrative effort. To really make your business prosper, brilliant ideas are only half the answer – you also need to ensure that your company is solid from the ground up.

One way of establishing a solid business base is through good record keeping. While this may not be entrepreneurship's most glamorous aspect, it is nonetheless a prerequisite to consistently good results. This article reviews some reasons and guidelines for accurate record keeping.

So what are the advantages good record keeping will offer you? The benefits are many.

First, accurate and consistent records enable you to keep track of your firm's progress. Records show whether sales are up or down, which clients are spending and which are not, and whether any changes are needed. Without adequate documentation, making reliable business forecasts or looking back to see where you have been successful in the past is considerably more difficult.

Good records are also fundamental to the preparation of financial statements – something on which every small business relies. Financial statements are necessary when dealing with banks and creditors, and also allow you to access information about your assets, liabilities and equity in your business quickly and systematically.

Also, records are a key tool in identifying the source of incoming money or property. Small businesses receive money and property from a variety of sources on a regular basis. By using accurate records you can identify where your various receipts come from, and separate non-business receipts from taxable income.

A simple but important function of records is to act as a supplement to your memory. For example, tax-deductible expenses may occasionally slip your mind. Without an adequate record keeping system, you will not be able to claim deductible outgoings come tax time – a loss which could be particularly detrimental to your business.

And then there is the question of tax records. Records are a crucial part of any small business' tax return. Records need to reflect the income, expenditure and credits that you note on your tax return. As a general rule, these figures will be the same ones that you use to monitor your business during the year.

Keeping good records throughout the tax year, and not just scrambling to assemble documents when your return is due, also means that you will have accurate figures available for official inspection at all times, which is always a possibility as authorities tighten up their approach to audits and financial reporting.

So, having established the various advantages of good record keeping, attention should now be turned to the type of records a small business owner should keep.

Usually, there is no set method of record keeping that a small firm should adopt. Rather, it's a question of choosing your manner of record keeping based on the type of small business you run, and its requirements.

The basic rule is that any records system is acceptable as long as it clearly demonstrates your business' income. And if you operate more than one small business, make sure that each operation's record keeping is entirely separate.

To assist small business owners in developing a record keeping system that is perfect for their needs, here are a few useful tips.

To begin with, daily business records are probably the best type of record, since they are usually very comprehensive and allow business owners to identify cash out and receipts with more precision than if less regular records are kept.

Supporting documents are a base for small business record keeping. Such documents include invoices, receipts, sales slips and paid bills. If you keep this supporting material in a systematic fashion, perhaps organized into categories, the preparation of good records will be that much easier.

Some detail is required when it comes to supporting documents. If you are a manufacturer or producer, for example, supporting material should show how much you paid for raw products.

One of the most important business aspects that good records reflect is expenditures. Supporting documents are also important in this area. For instance, emails, cash register tapes, account statements and invoices are all supporting materials, which allow you to keep track of expenditures.

A petty cash system is especially useful in this regard. A good petty cash structure allows you to monitor cash expenses that your business incurs and helps reduce employee theft temptations.

A computerized system is one example of how technology can assist record keeping. QuickBooks or Peachtree are good small business accounting applications.

Again, you must have attention to detail. To deduct a business lunch with a client from your tax liability, you should include information such as the client's name and the reason for the meeting on your records.

And finally, record keeping can help you keep track of your assets. Items such as your computer and your fax need to be accompanied by supporting documentation which contains information such as the item's purchase price and date, the cost of any improvements and how you use the asset in question. These details can be very useful when tax time comes around, or if you need to make an estimation of the value of your business.

Remember – record keeping may seem like an unexciting prospect, but do it properly and it will save your business a lot of time and money later on. Ask us for further advice on good record keeping or what we can do to ease your record keeping burden.

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