In any small business record-keeping system, there are five essential types of records that must be kept. Are you keeping all five of these in your business? Take a look, and pick up some organizational tips while you’re at it:
1. Sales Records. What are you selling, how much of it, and when? When organizing your sales records, do so by category. This will make them easier to analyze later. As an example, let’s say you sell both wholesale and retail. You might consider organizing these records by region or some other market segmentation. If you’re a service provider, you might choose to categorize your revenue records by the type of service you provide.
2. Cash Receipts. Cash receipts represent cash actually received, in the form of sales as well as collection of accounts receivable from monies formerly owed to you.
3. Cash Disbursements. This refers to monies actually paid on behalf of your business. Cash disbursements may indeed be cash, but they can also be paid by check. When recording cash disbursements, include these essentials: date, number, amount and purpose.
Small business purchases not paid for by check are generally paid for with petty cash. Most businesses establish a petty cash fund from which small purchases are made as needed. Funds are kept in a convenient but discrete location, and should be accessible only by a few. Petty cash expenditures should be tracked in much the same way as cash disbursements. Periodically, petty cash is replenished by totaling receipts for cash spent, then issuing another check to “Petty Cash” for the total amount of the receipts.
4. Accounts Receivable. A good record-keeping system should provide you with a detailed report of accounts receivable, including current information on customers and a running balance of their accounts. To maintain a good accounts receivable system, record credit charges on a regular basis. It’s essential that you follow up on all late-paying and delinquent customers.
Accounts receivable should be aged at the end of the month. This means organizing the accounts into those that are current, 30 days old, 60 and 90 days old. This arrangement helps you take appropriate and timely action.
Some of the key information on your accounts receivable report would include:
- Name of account
- Account number
- Invoice date
- Invoice number
- Invoice amount
- Terms of invoices
- Amount paid
- Date paid
5. Accounts Payable. An accounts payable schedule will provide helpful information about money you owe to others. Do you have bills that are past due? If so, you might rely too heavily on trade credit. How do you manage your cash?
A payables schedule lists the amounts you owe to others. Accounts payable schedules are generally prepared on a monthly basis.
While many businesses will also find it necessary to keep other important records – such as for payroll, insurance, and business equipment – the above five types of records are the most essential.
For those of you with small businesses in New Jersey, you’ll find a wealth of valuable information in my book Straight Talk About Small Business Success in New Jersey: How to Maximize the Growth, Cash Flow, and Profitability of Your Small Business.