Keeping accurate records is critical for small businesses for a number of reasons. First of all, when you have a complete picture of how much money is coming in, how much is being spent and what it is being spent on, you have a much better understanding of what areas could be cut and what areas you could increase your investments to boost your bottom line.

Another reason to have a well-organized bookkeeping system in place is it gives you a bird’s eye view of the overall direction of your business. You are able to see week by week and month by month if your business is growing, shrinking or generally staying in place. Also, if you need to secure some extra financing to expand the business, having detailed and accurate records will make it much easier for the application to be processed and give you a much better chance of having the loan approved.

Records that Should Be Kept: Areas of the business wherein you should keep accurate records for yourself, financiers, and your accountant. They include:

• Accounts Payable: This is the amount you owe vendors who provide products or services related to your business based on invoices received.

• Accounts Receivable: This is the amount your customers and clients owe you for products provided or services rendered based on invoices sent.

• Payroll: If you have employees, you need to keep updated records of their hours worked and wages paid. You will need this information to pay quarterly payroll taxes and to send W2s to employees at the end of the year.

• Inventory: It is important to know what goods you have in stock so everything not sold is accounted for and you know which items you are running low on and need to be reordered.

• Bank Statements: You should have a separate business checking account and perhaps even a savings account if you want a place to store liquid capital. This account should be used for all business transactions and the statements are used to reconcile your monthly bookkeeping.

• Credit Card Statements: Many entrepreneurs find it advantageous to use credit cards for business-related purchases. Perhaps you want to earn certain rewards such as airline miles or you just want a separate place to make business purchases. If you use credit cards, make sure they are exclusive to the business and you do not make charges on the card for personal items.

• Cash Transactions: If there are any cash expenditures for the business, they need to be accounted for in a separate category.

• Profit and Loss (P&L) Statement: This is the statement of your overall net profit (or loss) after all business expenses are deducted.

Setting up a bookkeeping system for your small business can be a time-consuming task. Once initiated, however, it is easier to maintain your records as long as you take time out daily or weekly to stay on top of everything.

There are many software brands on the market that can make your record keeping much easier. Speak to your local accountant about which software they recommend and how to get started.