The Importance of Keeping Proper Business Records - The Whys and Hows

The Importance of Keeping Proper Business Records - The Whys and Hows
By Leo Thomas

The importance of keeping proper business records cannot be overstated. Businesses amass a great deal of records, from incoming supplies to outgoing sales, from employee records to business contracts, from repair and expense receipts to revenues from business operations, there are records for everything. Keeping track of records and knowing what to save and for how long can be a daunting prospect. Saving documents can be both a time and storage space consuming issue for businesses. In general, records pertaining to financial transactions and employee records should be kept for a minimum of six years.

Governmental reporting for taxes and regulations regarding employees are generally the first instances illustrated when discussing the importance of keeping proper business records. These are very valid reasons for keeping records. Income (revenues) and expenses must be recorded for tax purposes and those records may be required several years after the year in which they occur and taxes were paid. Governmental regulators and agencies meant to serve employees can request documentation on a specific employee years after the period the record covers. As such, accurate documentation on pay and pertinent hiring information should be tracked and recorded.

Another reason illustrating the importance of keeping proper business records are the requirements of certain lenders and insurers. At some point, nearly every business will need to borrow money or obtain credit. Whether borrowing money to expand or using credit to procure supplies and raw materials, business credit is an important financial asset. As such, lenders will require documentation of past profits. They will use these records to compute future profit and loss projections. Similarly, whether insuring against losses from physical damages, covering liability, or protecting employee heath, insurance companies will often require both financial and/or employee statistics records.

The sale of a business also requires extensive documentation. It is quite possibly the most common illustration of the importance of keeping proper business records. Historical data on company finances plays a large role in determining the sale price of a business. Likewise, supplier and customer records, as well as the results of past marketing activities and expenses are invaluable to a new owner. This helps them prevent previous mistakes and continue achieving successful operations after the sale. For selling owners, financial records ensure an accurate sale price so they get what their business is worth when sold.

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