Recordkeeping is vital for all businesses, especially when it comes to financial records. Good financial business records are needed for a variety of reasons, including taxes, getting financing, and evaluating the company’s financial position when updating the business plan to move forward.
Important Financial Records for Accounting
There are a few common types of financial records that business owners will need for accounting purposes, most notably for taxes. These are often called “source documents,” and include:
1. Receipts for purchases.
2. Invoices and purchase orders.
3. Employee time sheets and payroll information.
4. Contracts.
5. Any other record that could back up the claim of a business expense if audited.
How Long To Keep Financial Records
Financial records should be kept stored and safe for a long enough period of time that any chance of audit passes. While with the IRS, that’s typically three years, they retain the right to audit for up to six years if they suspect major under-reporting of income. Because of this, many accountants suggest keeping financial records for up to ten years. After that point, many financial records can be disposed of, but a business owner may want to hold onto minimal records that demonstrate business trends for future evaluation.
Financial Recordkeeping and Privacy Issues
While financial recordkeeping is vital for any business for tax and accounting purposes, those financial records and source documents often contain private financial information such as account numbers or even personal information in cases of freelancers and sole proprietors. In order to protect not only the financial records, but also the privacy of the business owner(s), try to store records in a safe environment away from prying eyes when possible. A fire-safe safe would be a good option for small amounts of records (to protect the documents physically as well), or a locked room or closet can suffice for larger quantities of records, where access can be limited.