Module 2: Recordkeeping
Keeping good records
The term recordkeeping refers to the orderly and disciplined practice of storing and retaining business records. It is one of the most important things you can do as a small business owner. No matter what business structure you are – a sole proprietorship, partnership, limited-liability corporation or an S- or C-corp – creating and maintaining an effective record system is not only smart business, but keeps you in legal compliance should you experience an audit or a lawsuit down the road.
There’s no right or wrong way to keep records, but it is best to adopt a system that works for you and fits the needs of your business. The important thing to remember is that once you choose a recordkeeping and records retention process, you need to keep with it.
Reasons for keeping good records
In addition to meeting regulatory and legal requirements, effective recordkeeping allows you to understand your business – now and in the future. Let’s look at some of the reasons in greater detail.
Owning a successful small business requires you to track a significant amount of information about your customers, suppliers, sales, marketing strategies, and inventory. Without a proper recordkeeping system, you may lose sight of essential business details, affecting customer relationships, order histories, and preferences.
Proper recordkeeping can help you plan your business’ future. For example, if you have a clothing store, you need to anticipate seasonal demand to ensure you have the right inventory in stock to meet your customers’ needs. Your historical sales record will guide you in determining when to place orders for specific products, especially seasonal ones with short shelf lives.
As a business owner, you want to keep your personal records in good order too. If you apply for a business loan down the road, your lender may ask to see personal records such as bank accounts and loans.