As an owner, you need to keep a lot of records relating to your business, and you'll need to keep track of your finances. Actually, you'll need to act as a small business executive.
Many people shy away from paperwork — thinking it will be too confusing — and just muddle along, hoping someone else will do it for them or that everything will work out okay. Or, they think they can keep everything in their head. All this is a big mistake! You must maintain organized written records, even if you are a one-person shop. Here's why:
Maintain a separate business checking account. Don't mingle your business records with your personal records! By having a separate bank account, your business income and business expenses will be clearly documented. You will readily be able to see how well you are doing. Use this account ONLY to write business checks. If you wish to pay yourself income, make the check out to yourself, not to cash. In fact, avoid writing any business checks made payable to "cash." It is harder to document the purpose of checks made payable to cash.
Some record keeping suggestions include the following:
Support all your transactions, both income and expense: Keep the originals of invoices, canceled checks, paid bills, deposit slips, and any other records that support a business transaction.
Record keeping basically flows from four sources:
You'll need to keep track of your expenses — all expenses, whether tax-deductible or not.
Financial records can be kept on a computer. Dozens of software packages are out there just waiting to help you. If you can do it with pencil and paper, you can do it on a computer! If you like doing it yourself, try a spreadsheet program such as Excel. Again, you have to ask yourself if you're willing to do the work.
Caution: Remember, you need to keep original supporting documents in addition to your computerized records.
Hot tip: Always make sure you keep back-ups of your computer files in a safe and secure place.