Proper records are required for the operation of a successful business. In addition, records will be required by your banker and the Internal Revenue Service, as well as other legal and taxing authorities. There is no required way to keep books or records. The Internal Revenue Service says you may choose a system suited to the purpose and nature of your business. If you have inventories, you are required to use the accrual basis of accounting for income tax purposes. The usual system will provide for:
- A daily summary of cash receipts.
- A disbursements journal.
- A business checkbook and bank account.
- Payroll records, including records for social security and withholding taxes.
- A ledger of accounts.
You should not underestimate the value of proper records in your business or assume it will get done without effort or time devoted to it. Many small businesses pay too little attention to record keeping at the outset, and have no idea of the financial status of the business until they are in trouble. If you are not knowledgeable in this area, hire a good accountant to work with you to develop a system that will tell you every month whether you made or lost money and how much, what your cash flow has to be, and where it will come from. If you wait for the end of the year or the end of the quarter to find out if you have a profit or any cash flow to pay your bills, it may be too late.