Small business owners are often tempted to revert to their old ways after tax season, despite having suffered through the mad scramble to clean up their record-keeping processes to file.
The thinking is: “I have another 12 months before I need to look for anything again.” Needless to say, that’s not the right attitude. Worse still is how most small business owners and managers are not exactly savvy about national record-keeping requirements.
A recent TSheets survey shows the average business owner scored a paltry 24 percent on a quiz about essential record keeping.
Other stats revealed:
8 percent know how long personnel and employment records should be kept.
13 percent know how long employment tax records should be kept.
16 percent know how long employee timesheets should be kept.
22 percent know how long income tax returns should be kept.
Make it Personal
While the survey data revealed how little small business owners know about record keeping, the tune changes once the benefit or disadvantage becomes personal. In the questions where the employers scored better:
34 percent know what’s not required in employment tax records.
36 percent know how long Family Leave Act records need to be kept.
39 percent know how long employee illness and injury records need to be kept.
To me, these stats show the need to act is always easier when it’s personal. Convincing your SMB clients to create record-keeping habits and policies that will benefit themselves and their employees will help to save everyone so much headache down the road! This process may take a little time to nurture, but I have seen how beneficial it can be in the long run.
Utilize Technology and Enforce Policies
I’ll be the first to admit it: Record keeping is never fun, even when it means money back in your pocket. Like the ghost of Christmas Past, poor record keeping can come back to haunt you and your clients for years.
I’ve also realized that for most, “later” tends to turn into “never” when it comes to documentation. This is why I’m a strong believer in virtual or digital records. I always tell my clients, just because they’re not an accountant or bookkeeper doesn’t mean they can’t manage their records like a boss!
Document decay, loss, or displacement should no longer be a concern when cloud storage is so readily available and affordable. And once they have technology on their side, it’s time to put record-keeping policies in place and let their employees know of what is required of them. I’ve seen businesses have great policies, but only in theory.
When something goes awry — something costly — then record keeping becomes a DEFCON 1 mission. But it shouldn’t have to come to that in the first place.
Applicable to All
Before you get your clients’ financial houses in order, make sure you too are practicing what you preach. If my firm doesn’t have a good grip on documentation, that’s going to affect my pulse on my client’s businesses, and that’s a huge disadvantage.
Not only does it communicate to the client that I am unprepared, but it also tells my clients that my staff is not being meticulous in their preparation of financial information. This causes my clients to lose confidence in my company as a whole. The implication of this as a business owner is potential lost revenue, and that’s something that’s going to affect everyone at my firm.
As someone who’s been on all facets of operations, whether in my role as a financial statement auditor, the employee of a Fortune 500 company, or a business owner, I know the struggles of implementing and enforcing good record keeping firsthand. But I also know it’s absolutely crucial to running a successful business, regardless of industry and location.
Bad record keeping is just bad business and that’s not where your clients should be.
Melissa is the shareholder and financial and GAAP accounting guru at High Rock Accounting, where she specializes in the healthcare industry and assists clients with GAAP compliance, financial modeling, financial reporting, and general financial accounting inquiries.