If you’re a business owner like me, you probably think keeping track of income and expenses in a simple spreadsheet or notebook is good enough for recordkeeping. I used to believe that too, until my CPA friend Jane convinced me otherwise.
Jane explained that solid recordkeeping goes way beyond basic bookkeeping – it’s an essential business practice. At first, her emphasis on comprehensive records seemed overkill. But once she walked me through all the ways proper documentation protects my assets, avoids penalties, supports growth plans, and more, I realized why CPAs like Jane preach the value of organized systems.
In this post, I’ll share Jane’s guidance so you too can understand why CPAs push robust recordkeeping. I’ll also provide tips Jane gave me for creating efficient systems that meet best practices.
Let’s dive in!
First, a quick primer on what CPAs do. CPA stands for certified public accountant – these professionals are licensed experts in accounting, taxes, auditing, and financial strategy. Many run their own firms serving individuals and business clients.
CPAs provide invaluable services to keep companies financially healthy and compliant with laws. This includes:
– Preparing accurate financial statements
– Filing correct tax returns
– Helping clients pass audits
– Meeting legal record obligations
– Streamlining operations through data analysis
– Strategic business planning using historical records
To deliver these key services, CPAs need clients to maintain complete and organized records. That allows them to produce complete financial reports, maximize deductions, document compliance, uncover optimization opportunities, and more.
So part of a CPA’s role is to emphasize the vast benefits of robust recordkeeping systems and help clients implement them. Let’s explore the specifics.
At first, I thought Jane was just talking about bookkeeping – keeping track of money coming in and going out. But recordkeeping is far more extensive than basic accounting ledgers.
It encompasses maintaining documentation on almost every aspect of operating a company. This includes records on:
– Banking – statements, deposits, withdrawals
– Invoices, receipts, bills, purchase orders
– Inventory and deliveries
– Payroll, taxes, benefits
– Loans, credit, payments
– Insurance policies and claims
– Property ownership and value
– Investments and retirement plans
– Tax filings and correspondence
– Personnel issues and policies
– Vendor and consultant contracts
– Procedures, guidelines, manuals
– Legal and regulatory filings and licenses
– Electronic accounting and sales data
– Backups of critical computer systems
And more – the list of records that need to be maintained is lengthy! That may seem tedious, but Jane emphasized how each set of records serves an important purpose.
Jane explained that comprehensive records do much more than just tell you how much money came in and went out. Robust documentation provides immense strategic, financial, legal, and operational benefits, including:
Accurate financial statements. You can’t create complete, accurate year-end financial reports without detailed records on every transaction. Auditors need backup too – they’ll ding misleading financial statements lacking integrity.
Valid tax returns. Come tax time, you better have the documentation to prove income, deductions, expenses, credits, losses, depreciation, and more. The IRS won’t give you deductions without evidence!
Audit defense. Sometimes the IRS selects returns for review. Companies better have ironclad records to validate every figure or an audit can become a long, expensive nightmare.
Legal and regulatory requirements. Failing to keep specific records for set time periods violates laws. Lawsuits also rely on solid documentation as evidence.
Avoiding penalties. Inadequate records prevent the IRS from determining taxes accurately, leading to penalties beyond just extra tax and interest due. Yikes!
Efficiency. Quick access to organized records makes research and reporting a breeze. An unorganized mess leads to unproductive time spent searching for files.
Informed decisions. Growth plans, budgets, investments, and other key decisions are only as good as the historical data behind them. No numbers = uninformed stabs in the dark.
Operations analysis. Comprehensive records allow managers to spot redundancies, wasteful processes, theft, staffing requirements, profit leaks, and other areas for improvement.
Asset protection. Detailed records prove ownership, existence, and value of equipment, property, IP, investments, and other assets in case of disputes.
Problem and dispute resolution. Robust documentation provides rock-solid evidence to support your position in lawsuits, contract disagreements, employee issues, liability claims, and any other disputes.
Regulatory and legal compliance. During audits and investigations, regulators require proof you comply with policies, laws, regulations, procedures, safety protocols, employment practices, etc.
Credit applications. Lenders need visibility into finances and operations to approve loans and set rates. Weak records mean denial or sky-high interest rates.
I don’t know about you, but I want all of those benefits in my company’s corner, don’t you? A few scribbled notes in a notebook or spreadsheet won’t provide such advantages. So what does it take to implement recordkeeping best practices?
The idea of comprehensive documentation may seem daunting. But Jane assured me it’s very doable with the right systems in place. Here are her tips for seamless recordkeeping:
Pick a format. Jane said companies can use:
– Paper records in clearly labeled filing cabinets. Physical copies provide tangible backup.
– Digital systems to scan documents into secure cloud or external hard drive storage. Easy to back up and search.
– Robust accounting software that stores transactions, documents, generates reports, and backs up data.
– A hybrid approach using both digital and paper for critical documents.
Organize files and labels. Critical steps include:
– Organizing folders or digital directories by year and record type. Like a folder called “Vendor Contracts 2023.”
– Using color-coding and labeling to make files easy to identify.
– Keeping current year records easily accessible while archiving older docs.
– Purging outdated records on schedule based on legal retention requirements.
Leverage software. Options Jane suggests include:
– Accounting systems that centralize documents, data, reporting, and backups.
– Document management software to digitize and organize vast amounts of paperwork.
– Systems that integrate well across operating systems and various devices.
Secure backups. Be sure to:
– Maintain duplicate copies of digital and paper records in secure offsite locations in case of theft, fire, flood, or computer failure.
– Password protect and encrypt sensitive data.
– Only permit access to authorized personnel.
Perform regular reviews. This allows you to:
– Do weekly or monthly income and expense spot checks.
– Reconcile bank and credit card accounts.
– Conduct inventory and cycle counts.
– Review payroll, contracts, policies, procedures regularly.
Work with your CPA. Ask them to:
– Guide you in setting up systems and training employees on processes.
– Develop retention schedules for various record types like financial, legal, tax, payroll etc.
– Periodically review systems to ensure adherence to best practices.
– Help monitor high-risk recordkeeping areas and compliance.
If terms like “cycle counts” or “retention schedules” sound confusing, no worries! Jane walked me through everything in simple language until I understood.
After Jane explained the immense benefits, I realized why she advocates so strongly for organized recordkeeping. Accurate and complete documentation enables:
– Compliant tax and financial filings
– Smooth audits
– Confident strategic planning
– Protection for assets and disputes
– Optimized business processes
In contrast, scattered paperwork invites penalties, wasted hours, and uninformed decisions.
Implementing robust systems requires an initial time investment. But the long-term payoff for your company is well worth it. Rely on your CPA’s expertise to implement recordkeeping best practices. Their guidance helps ensure your company’s records support growth rather than hindering it.
So take it from me – don’t make the mistake I did thinking basic books are enough. Comprehensive recordkeeping seems tedious until you fully grasp the many rewards. Now I actually appreciate keeping thorough documentation! It really makes operating and expanding my business much smoother.
I hope this overview gave you a clear understanding of why CPAs like Jane stress the importance of complete recordkeeping for their clients. Please feel free to reach out to me with any questions! I’m always happy to chat more about my learnings.