By Rachelle Barnier, CPA at Nasif, Hicks, Harris & Co., LLP
Whether you are starting a new business or have a resolution to start 2015 on the right foot with your existing business, creating and maintaining business records separate from personal records is essential. Maintaining separate business records is fundamental to helping you analyze your business profitability. The key to this practice is to keep it simple. Here are 4 steps to help you maintain separate records for your business:
- Establish an exclusive box or envelope to deposit weekly business invoices/income receipts and bills/expenses paid. Label the box/envelope “Weekly Business Income & Expense Receipts”.
- Designate 1 day per week, typically the day after your busiest business day, to go through the “Weekly Business Income and Expense Receipts” box or envelope. Record each income and expense item in your business financial record keeping system. You can use an Excel workbook, a notebook exclusively for your business financial statements, or QuickBooks if you have strong accounting debit/credit skills. Limit the amount of categories and choose basic category names to keep it simple. For income items, simply categorize these in your financials in the “Income” category. For expense items, the following categories will do: “Supplies”, “Insurance”, “Postage and shipping”, “License fees”, “Telephone expense”, “Computer, printer & software”, “Email, internet access & website fees”, etc. You always have the original receipt to reference should you need to locate more detail on the expense/income item in the future.
- After the weekly invoices/receipts have been recorded in your business financial statements, file each receipt/invoice in your business file box or file cabinet. Maintain this file box exclusively for your business records. Label the individual files within it with short descriptions that are comparable or corresponding to the categories of your business financial statements, such: Income/invoices, Supplies, Insurance, Postage and shipping, License fees, etc.
- After completing 4 weeks of above three steps, you will have one months of income and expense activity recorded in your business financial statements. Sum that month’s activity and “close” the month. Closing the month means that you don’t make any changes to that month either now or in the future. If you learn that you incorrectly recorded something for a closed month or you refund a customer for something you collected in a prior month, correct it in the existing month you learned of the error. Do not go back and change the month the error occurred. This will save you from chasing history and remembering whether or not you already made the change in the prior month.
The fundamental strategy to keeping business records separate from personal records is to create simple processes and address it weekly. By keeping it simple, you will be far more likely to stay up to date with your finances. Maintaining separate business records is key to managing your business profitability. January is the perfect month to implement these practices so you can have a successful and organized 2015!