Keep Good Records E-mail
Growth - Growing Your Home Business

Why keep records? There are many reasons. For the individual just starting a home business, a good record-keeping system increases the chances of survival.

Even an established home business can enhance its chances of staying in business and increasing profits with a good record-keeping system.

Good accounting records decrease the chances of failure and increase the likelihood of remaining in business and making a profit. The following are some of the questions that good business records can answer:

  • How much business am I doing?

  • How much credit am I extending?

  • How are my collections?

  • What are my losses from credit sales?

  • Who owes me money?

  • Who is delinquent?

  • Should I continue extending credit to delinquent accounts?


  • How much cash do I have on hand?

  • How much cash do I have in the bank?

  • Does this amount agree with what records tell me I should have, or is there a shortage?

  • How much have I invested in supplies?

  • How often do I turn over my supplies inventory?

  • How much do I owe my suppliers and other creditors?

  • How much gross profit or margin did I earn?

  • What were my expenses?

  • How much net profit did I earn?

  • How much income taxes will I owe?

  • Are my sales, expenses, profits and capital showing improvements or did I do better last year than this?

  • How do I stand as compared with two periods ago?

  • Is my business’s position about the same, improving or deteriorating?

  • On what services am I making a profit, breaking even or losing money?

  • Are the discounts I get from suppliers as great as those I give to my customers?

  • How do the financial facts of my home business compare with those of similar businesses?

Get the point? Your business requires a good record-keeping system to help you work smarter rather than harder.


Keeping accurate and up-to-date business records is, for many people, the most difficult and uninteresting aspect of operating a business. If this area of business management is one that you believe will be hard for you, plan now how you will handle it. Don’t wait until tax time or until you’re totally confused.

Take a course at a local community college, ask a volunteer SCORE representative or hire an accountant to advise you on setting up and maintaining your record-keeping system.

Your records will be used to prepare tax returns, make business decisions and apply for loans. Set aside a special time each day to update your records. It will pay off in the long run with more deductions and fewer headaches.

A good record-keeping system should be:

  • Simple to use.

  • Easy to understand.

  • Reliable.

  • Accurate.

  • Consistent.

  • Timely.

Several published systems and software systems provide simplified records, usually in a single record book. These systems cover the primary records required for all businesses, but some are modified specifically for the home business. Check your local office supply store, your trade association or trade journals for more information on specialized record books.


To keep track of everything, you should have the following records:

  1. Income Reporter: gives you a place to write down the income you receive from your cottage company. Remember that income is cash received rather than sales made. It isn’t income until you get the money in hand.

  2. Expense Reporter: a tool for recording the costs of your business including office expenses, product costs, labor and other expenses.

  3. Cash Flow Reporter: a useful tool to help you track when money is expected to come in and when it’s scheduled to go out. You don’t want to borrow money to pay expenses just because you forgot to collect from a customer.

  4. Inventory Reporter: used by businesses selling or reselling a product. It includes columns for keeping track of how many units you have so you don’t have to back-order or tell customers you don’t have any left.

  5. Income and Expense Worksheet: combines information from the Income Reporter, the Expense Reporter and other resources to help you calculate whether your home business is making a profit or a loss.

Some businesses combine all of these records into a single report. In fact, there are many good one-write systems available that allow you to make a single entry for each transaction. You can also use computer software such
as Quicken (www.quicken.com), QuickBooks (www.quickbooks.com), or Microsoft Money (www.microsoft.com/money/) to track income and expenses in a checkbook format.

 

← SIC Codes   Promote Your Business →