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Are you maintaining accurate records?

maintaining accurate records

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.

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“.

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).

maintaining accurate records

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.

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“.

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.

maintaining accurate records

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maintaining accurate records

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Nexus Overview

Nexus Overview

“Nexus” is a connection between a state and a taxpayer, sufficient enough to allow the state to subject the taxpayer to its taxing jurisdiction and require the taxpayer to file tax returns and pay taxes.

The concept is fairly straight forward, and easily understood, by companies doing business solely within the boundaries of their home state. But for companies engaged in interstate commerce, the determination of nexus becomes a more critical component in taxation matters. Certain activities can trigger nexus for both sales/use tax and income tax compliance, thus requiring an out-of-state vendor to register, report, and remit the appropriate tax to a state where nexus has been determined to exist.

Business Activities That Create Nexus

Typical business activities that create either sales tax or franchise tax nexus include, but are not limited to:

Sellers often fail to register and comply with a state’s taxing requirements due to the mistaken belief that activities of a division and or sub-contractors do not create nexus, that product displayed or available for sell on a consignment basis does not create nexus or that salesmen calling on customers for orders accepted out-of-state does not create nexus. In reality all of these activities do, in fact, create nexus.

The virtual markets and the internet have expanded the proliferation of nexus questions traditionally brought forth by mail-order activity. An understanding of nexus and proactive state tax planning, prior to business expansion into other states, may eliminate burdensome filing requirements and costly penalties and interest for failure to comply.

Nexus Overview

See Also:
Managed Sales and Use Tax Programs
Audit Committee
Carried Interests
Net Sales
Market Positioning

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Form 1098

Form 1098 Definition

The IRS uses the form 1098 for the purpose of gathering information upon an individual’s amount of interest payments and mortgage payments throughout the year. 1098 reporting is beneficial because it allows an individual to claim a 1098 deduction on the tax return.

Form 1098 Explanation

The 1098 form often times is there to help individuals realize their deductions. This is quite important because the form 1098 deduction will effectively reduce the amount of taxable income, meaning that the individual will not have to pay taxes on the interest and mortgage payments. The sorts of payments that are allowed are the mortgage payments on real estate, student loans, and vehicle loans. There is a 1098 IRS form for each of these items depending on what the individual is trying to claim as a 1098 deduction. There is even a 1098-t form which allows an individual to claim tuition fees as a deduction. Overall, the 1098 form is an effective way for individuals to reduce their amount of taxable income and save money.

form 1098

See Also:
401k
W2 Form
Form 1099
Deferred Income Tax
Marginal Tax Rate

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