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The key to success is the knowledge one gathers from the relationships we make and the experiences of others. If you have just discovered CT Jewelry Design, I encourage you to subscribe and follow along. Feedback is always welcomed! - CT

Wednesday, December 3, 2008

Record Keeping

When developing a record keeping system, your goal should be to keep it as simple as possible. The records you keep should have a direct bearing on your small business and should be both comprehensive and easily understandable. Keep your records up-to-date in a manner that is uniform throughout the system.

Why should you keep records of your business operations? Two reasons, first they are required by law and secondly they will give you a full picture of your small business venture at any given time. It will also help to identify and correct any cash flow problems before they become major issues. Regardless of the type of system you use, the records must be accurate, complete and permanent.

There are four basis types of records that you will have and must track; sales records, cash receipts, cash disbursements and any open accounts receivable:

Sales records will include any income from the sale of your products or services you may provide. These can be grouped together or into separate sub groups so you can monitor what areas are doing better than others.

Cash receipts equal any monies generated by cash sales and the collection of accounts receivable. In a cash and carry small business your cash receipts will match your sales records.

Cash disbursements are your operating expenses or accounts payable disbursements. All disbursements should be done by either check or a business credit card and make sure they are well documented for tax purposes. Personally, I prefer a business credit card because typically all the expenses are itemized and I only have to write one check at the end of the month. And by paying timely I do not pay any interest so I am using and floating their money for 30 days.

An important note: this business card should “only” be used for business purposes…do not mix business expenses with personal expenses and keep a mental note of your running monthly tab. There’s nothing more discouraging than spending more than your sales for the month and being in the red. Your goal is to always be in the black!

If you must pay cash for something, always ask and keep your receipt. Put a comment on the back of the receipt of what the expense was for and for what reason. A small $25 or $50 petty cash drawer is helpful for these small cash expenses. Maintain good records as well for these expenses by listing the date the item purchased, the amount and why the item was purchased and balance it at least monthly.

Accounts receivable are sales from the extension of credit. Keep monthly records of any outstanding balances. If your customer becomes more than 60 days past due you will need to start following up on these accounts to make sure you receive your payments timely (I will cover collection activities in another article down the road.)

Keep all your expenses and records filed in an orderly manner and stored in a safe place. Every month you should reconcile your checkbook with your bank statement and make any necessary adjustments immediately. These supporting records should typically be kept for three years and you should keep your federal income tax returns forever. As always check with your professional accountant for expert assistance. - CT


Spotted Sparrow said...

These are fabulous tips! I've tagged your blog. Check mine out if you'd like to play: http://blog.spottedsparrow.com/2008/12/thursday-thunkswith-tags.html.

Janice said...

Thanks for posting! (I'm in Ellicott City -- not too too far from Hagerstown - I feel like we're 'neighbors' considering other internet friends!)

CT said...

Thanks Spotted Sparrow. Glad you enjoyed. I will play soon.- CT

CT said...

You're welcome Janice...Oh my you're just a hop and a skip away! [waving] We are neighbors. Good to see you! - CT

CT said...

BTW Janice...how did you find me?

KayzKreationz said...

CT, great article. I see where it made it onto Artfire, too. Congratulations on another great article for us.

CT said...

Hi Kay! Yes, how about that! I love writing for Artfire...you should try it too. - CT

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