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Accounting

Are you maintaining accurate records?
Are you maintaining accurate records?
 * Other Category: Accounting, Financial Statements & Reports, GAAP / IFRS

 * August 2, 2017
 * Dan
 * financial records, financial statements, invoice, records, revenue, tax
   return




Have you ever sat down at your desk and seen papers everywhere, little to zero
organization, and not been able to tell where your company stood financially
right away? It is easy for financial leaders, executives, and other business
leaders to get in this messy state. Sure, you may have once had accurate records
and known exactly where you were. But maintaining accurate records consistently
is a critical piece to positioning your company for sale, getting ready for
growth, acquiring capital, etc.
[box]Are you in the process of selling your company? The first thing to do is to
identify “destroyers” that can impact your company’s value. Click here to
download your free “Top 10 Destroyers of Value“.[/box]
First, what is accurate or accuracy? Oxford Dictionaries defines accuracy as
“the quality or state of being correct or precise.” If your company’s records
are not consistently correct and precise, you may encounter some undesired
results.


ARE YOU MAINTAINING ACCURATE RECORDS?

A simple way to answer this question is to look at your records. Can you easily
pull client reports, tax filings for the past couple of years, or receipts from
a specific vendor?  Are you able to find information quickly? How well are you
able to manage your business with your current records?


WHY MAINTAIN RECORDS

Maintaining accurate records is not just for external entities like the IRS,
banks, venture capitalists, etc.; but it is also essential for major management
decisions, customer support, and financial growth. It allows every party related
to your business to see clearly where the company stands. Banks, attorneys,
decision makers, etc. all need to understand how your company is positioned.
“These records will help you analyze your business’s profitability, stay out of
trouble with tax authorities, maintain positive relationships with clients and
vendors, protect your business from lawsuits and win lawsuits if you are harmed”
(Investopedia).

No one likes to drive blind, so why would you have disorganized, inaccurate
records that blind you from seeing the whole picture when making decisions?


HOW TO MAINTAIN RECORDS

There are several ways to maintain accurate records. These include identifying
revenue streams, keeping track of invoices and receipts, preparing financial
statements, tracking deductible expenses and preparing tax returns. Although
these are not all the important records you should maintain, they are a good
starting point.




IDENTIFY REVENUE STREAMS

This might seem like the most obvious thing to do. But oftentimes we arrive at a
new client to find they are mixing business and nonbusiness receipts as well as
taxable/nontaxable sources of income. Separate for-profit and non-profit clients
from each other. If you service multiple industries, it might be useful to
separate your revenue streams by industry.
You don’t want to avoid looking at your business’s revenue. Where did that
revenue come from? Is there an industry or type of business that is more
profitable than others? Maintaining accurate records isn’t just for those
outside the business, but it also will allow you to understand your entire
company’s performance.
[box]If you’re selling your company, buyers want to see each revenue stream
clearly. By not having accurate records, you may be looking at destroyers of
value. To improve the value of your company, identify and find solutions to
those “destroyers” of value. Click here to download your free “Top 10 Destroyers
of Value“. [/box]


PREPARE FINANCIAL STATEMENTS

To prepare precise financial statements, it is critical that you maintain
accurate records. Your income statement and balance sheet act as a window into
how your business is performing. If the data isn’t 100% accurate, then any
decisions made based on that data will not be the best decisions possible. This
is because the information isn’t reliable. This can cause a disaster!


KEEP TRACK OF INVOICES & RECEIPTS

Because of the importance of tracking profitability, you as the financial leader
should have a process to track your income and expenses. As a major tool in
managing cash, regularly produce reports of the amount and composition of
accounts receivables and accounts payable, what has been collected and paid. Not
only will this create a system to time payments and encourage your team to
collect, but your bank or creditor will be able to rely on your system. This is
essential knowledge for the banks to know if you are in a financial crunch.


PREPARE TAX RETURNS

Taxes are a necessary part of operating a business. When you produce tax
returns, precise records are required. You need to report income, expenses, and
debt on this document. Thankfully, this is not a major burden on your time as
you should already have these three categories accurately measured and tracked
as you need them to effectively measure the success of your business.



TRACK DEDUCTIBLE EXPENSES

Unless you track your deductible expenses throughout the year, you will most
likely forget them when you prepare your tax returns. Be sure to create a file
for all deductible expenses.


TIPS IN MAINTAINING ACCURATE RECORDS

There are a couple tips and tricks to maintaining accurate records. Some of
these include separating personal and business finances, having client files,
storing contracts, and maintaining accounting/tax records.


SEPARATE PERSONAL & BUSINESS FINANCES

One of the top rules in operating your own company is to separate personal and
business financials. When companies do not separate business and personal
finances, records are muddled and there is no clear method to see what is
personal and what is business. By doing this, you may run into tax issues,
relationship issues, and inaccurate records.


HAVE CLIENT FILES

Separate each client into their own individual file. This will allow you to
easily see when they started doing business with you, what work you’ve done with
them, and how your relationship is progressing. In addition, you will be able to
save time by picking up just one file for the client. And you will have
everything you need to know about them in that folder. Need to have invoices,
etc. in another folder? Make copies and put everything related to that specific
client in their folder.


STORE CONTRACTS

When you get served with a lawsuit, it can be shocking. But the best way to
combat the stress is to know exactly where to find everything you need to battle
your accuser. Store and make copies of all contracts in one place. Then
categorize the contacts by clients, employees, vendors, suppliers, etc..
Organize the contracts in a way that makes sense for your business.


MAINTAIN ACCOUNTING & TAX RECORDS

The worst offence in maintaining accurate records is not staying on top of your
accounting and tax records. Instead of doing the past three months of accounting
in a week, create a system to update, maintain, and produce reports regularly.
Submit these report for your financial and executive team to view on a schedule.
One of the main “destroyers of value” is not consistently having accurate
records. If you are looking to sell your company or just want to improve its
value, download your free guide to avoiding things that take value away from
you.


[box]Strategic CFO Lab Member Extra

Access your Exit Strategy Checklist Execution Plan in SCFO Lab. The step-by-step
plan to put together your exit strategy and maximize the amount of value you
get.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs[/box]

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insider. 
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