As an owner of a therapy or coaching practice managing your financial records is crucial for staying organized, making informed decisions, and preparing for tax season. But with so many documents to keep track of, it can be overwhelming to know what to keep and for how long. Here's a guide to help you understand which financial records are essential for your business and why.
Why Keep Financial Records?
Maintaining accurate financial records isn’t just a best practice—it’s often a legal requirement. Here are a few key reasons why recordkeeping is so important:
Compliance: Tax authorities like the IRS require you to retain specific records in case of an audit.
Decision-Making: Financial records help you track income, expenses, and cash flow, enabling smarter business decisions.
Financial Health: Proper documentation allows you to monitor profitability, manage debt, and assess business growth.
Loan Applications: If you need funding, banks and investors will request detailed financial information.
Essential Financial Records to Keep
Here’s a breakdown of the most important financial records your business should maintain:
1. Income Records
Invoices: Keep all invoices sent to clients or customers.
Receipts for Sales: Retain sales receipts, whether from online platforms, point-of-sale systems, or manual transactions.
Bank Deposits: Document deposits made to your business accounts.
2. Expense Records
Receipts: Save receipts for business purchases, meals, travel, and other deductible expenses.
Vendor Bills: Maintain copies of bills and payments to suppliers or service providers.
Credit Card Statements: Use these to track expenses and ensure accurate categorization.
3. Payroll Records
Employee Information: Keep records of wages, hours worked, and benefits provided.
Tax Documents: Retain W-2s, W-4s, and payroll tax filings.
Contractor Payments: Save 1099 forms and records of payments to independent contractors.
4. Tax Records
Filed Tax Returns: Store copies of your business’s tax returns and supporting documents.
Sales Tax Documentation: Maintain records of sales tax collected and remitted.
Estimated Tax Payments: Document quarterly tax payments.
5. Bank and Financial Statements
Bank Statements: Keep monthly statements for your business checking and savings accounts.
Loan Documents: Retain agreements, repayment schedules, and proof of payments.
Investment Records: Track any business investments and their performance.
6. Legal and Regulatory Documents
Business Licenses: Store copies of permits and licenses required for your operations.
Contracts: Maintain signed agreements with clients, vendors, and employees.
Insurance Policies: Keep records of liability, property, or other insurance policies.
7. Financial Reports
Profit & Loss Statements (P&L): Summarize your business’s income and expenses.
Balance Sheets: Track assets, liabilities, and equity.
Cash Flow Statements: Monitor the movement of money in and out of your business.
How Long Should You Keep Financial Records?
The retention period for financial records varies depending on the type of document and legal requirements:
Type of Record | Retention Period |
Tax Records | At least 7 years in case of an audit. I would even suggest up to 10 years! |
Employee Payroll Records | 3 years (or longer, depending on your state). |
Contracts and Legal Documents | Indefinitely or for the duration of the agreement plus a few years. |
Bank Statements and Invoices | 3-7 years for reference and compliance. |
Tips for Organizing Financial Records
Go Digital: Use cloud-based accounting software or document management systems to store and organize records securely. If you don't want to keep things digitally, then keep a safe of important files in a fireproof safe ideally offsite in a secured location.
Categorize: Set up folders for income, expenses, taxes, and other key categories.
Back Up Regularly: Ensure digital files are backed up to prevent data loss.
Consult a Professional: Work with a bookkeeper or accountant to ensure compliance and efficiency.
Final Thoughts
Keeping accurate and organized financial records isn’t just a chore—it’s an investment in the success of your business. By maintaining the right documents, you’ll be better prepared for tax time, audits, and financial growth opportunities. If you’re unsure where to start or need help managing your records, consider reaching out to a professional bookkeeper for guidance.
If your ready to take your business to the next level and have bookkeeping expert, Melanie Queen help you, schedule a free consultation with her today!
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