Ask yourself this question, and answer honestly: how do I feel about my business recordkeeping?
Last month I attended a presentation hosted by a friend and coworker, Dave the Tax Guy of ITP Taxes. The topic: Recordkeeping. I know, I know, sounds like a topic as enthralling as watching paint dry. But I can assure you, Dave quickly had the undivided attention of everyone in the room, as he told a harrowing story about the process of working through an audit by the IRS.
If the letters “IRS” in close proximity to “audit” don’t make you feel uncomfortable, it probably should. According to the IRS, an audit is “a review/examination of an organization’s or individual’s accounts and financial information to ensure information is reported correctly according to the tax laws and to verify the reported amount of tax is correct.” It can be an expensive, time-consuming process if you aren’t prepared for it, but here’s where recordkeeping comes in: if you keep appropriate records of your business receipts and expenditures, the prospect of going through an audit isn’t quite as daunting.
As I was listening to Dave’s practical tips on his recordkeeping system, I couldn’t help but notice the parallels to the advice that lawyers give clients every day. Document everything. Ok, you may not need to document everything – after all, you need to do what brings home the bacon for part of the day. However, setting up systems to track the important aspects of your business makes recordkeeping as pain-free as possible. One simple suggestion from Dave was to keep a mileage log for business travel – there are great apps that will do the trick (see Mile IQ), or you can simply keep a notebook with detailed, handwritten notes in it.
From a legal perspective, a recordkeeping system that promotes regularly kept documentation is a great thing to have. That way, in the event of a conflict or if something out of the ordinary happens, you have records to fall back on to refresh your recollection, and potential proof of the events that occurred as they transpired. Dave mentioned that an IRS audit often occurs between one and three years after the close of the tax year. Similarly, sometimes issues don’t present themselves until months, even years later. We’re all busy and have a lot going on; imagine trying to remember the precise details of what happened last month, let alone last year without notes.
Other areas where business recordkeeping is important, but often ignored:
- Corporate books, including organizational documents and amendments, shareholders agreements, stock certificates and ownership changes, minutes of company meetings and corporate approvals through voting records or unanimous consent resolutions.
- Calendars of contract deadlines, filing and renewal deadlines, tax filings, trademark filings and regulatory filings
- Tax, financial and payment records
- Policies and procedures
Now that you’ve read this post, ask yourself the question at the top of this article again. Still feel the same way? Are there improvements that can be made?
If so, and you need help getting started, I’d suggest reaching out to the professionals in your life. Dave offers a service to his clients that helps manage their receipt and expense management systems – click here to contact him via email. I help clients all the time by guiding them through the process of keeping solid records to capture the information that we will need in the event of a potential claim or lawsuit, a contract negotiation or a business transaction.
Someone smart once said “Every day is another opportunity to get better.” Is it possible they were talking about business recordkeeping?