The ABCs of Good Record-Keeping
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(YoungBiz) - On a typical day, you can find Meghan Ellwanger, the 18-year-old owner/operator of the Berry Patch Nannies goat farm in Somerset, Wisconsin, looking after the goats she raises for breeding and milking. Caring for the goats includes feeding them--baby goats need to be fed four times a day--giving them water and cleaning their pens. Ellwanger also delivers the babies, watches their diet to keep them disease-free and has even experimented with artificial insemination.
That may sound like enough to keep her busy, but there's also the behind-the-scenes management of her business. Along with her everyday duties, Ellwanger spends a fair amount of time watching her business's bottom line. Her detailed records, which she keeps both on the computer using Quicken and by hand, help her to track the costs associated with running her business.
For Ellwanger, there was an immediate payoff to keeping good records. A written business plan she created won her a $250 prize in a competition sponsored by Independent Means. Though she was thrilled to receive the award, she also knows that keeping good business records will lead to a bigger payoff down the road.
Not only will careful record-keeping let Ellwanger know when her business earns enough to start paying taxes and protect her down the road in the event of an IRS audit, but it also helps her to measure key indicators, like cash flow. "My ongoing costs include feeding the goats and the veterinary bills," says Ellwanger. "Basically, my record-keeping gives me an idea of what to expect."
Like anything in life, from cleaning your room to studying for a big exam, it's far easier to tackle the task as you go rather than all at once. The same principle applies to sound record-keeping--it should become a part of the daily business of doing business. For starters, it's important to:
- Keep track of all the money coming into and going out of your business
- Keep a copy of the receipt every time you make a sale
- Get a receipt every time you buy something for your business showing the date, price and the item purchased
Now that you've begun collecting all that information, how do you put it together so it forms an overall picture of your business? While it's fine to keep records by hand, many 'treps find that computerized records are a big time-saver. "Since I don't like to spend hours digging in file cabinets and working on sales tax reports, I need a record-keeping system that really works," Webster says.
Most office supply stores carry several different software programs for keeping home or business records. According to Webster, here's what a good accounting program should do:
- Keep detailed records of all your business income and expenses
- Print bills, statements, invoices, job estimates and receipts for customers
- Help you track and pay bills
- Keep track of how much inventory you have on hand
- Calculate sales tax and sales tax reports
- Maintain lists of customer names and addresses
You should also keep the future in mind when you're purchasing a software program. For example, if you plan to grow your business or hire employees, look for a program that can write your employees' paychecks and produce income tax reports.
Once you get a plan or program in place, it should be able to keep it up-to-date by spending just a few minutes a day entering your latest data. Whatever route you choose, keep in mind that there's a bottom line at stake--your business's.