Why You Need to Keep Good Financial Records in Business

In order to make sure that you business is running smoothly, you have to keep good financial records. This is one of the issues with which businesses are most concerned because they want to make sure that they are turning a profit and at the same time paying the appropriate taxes to the government. When a business files an income tax return, it has to have all its I's dotted and t's crossed if it doesn't want to undergo a tax audit. That is why all income and expenses have to be carefully documented and all receipts kept.

Any income is liable to taxation, even if you do not have any overhead. A simple Internet business making money from Google ads will receive a T4 slip at the end of the year. If you do not report all earnings then you could be liable for tax fraud. Having an accurate account of all the expenses you incurred throughout the year could get you a tax refund if you pay in too much in quarterly instalments, if that is the way you pay your business tax.

In addition to being taxed by the federal government, there are also state and provincial tax rates for business owners. When you add in the cost of licences that you need to have for operating and your overhead costs, you may well show a loss at the end of the year. You are liable to penalties if you do not keep accurate records and you have to allow the revenue officials access to your records when they request it.

Business records were traditionally kept in ledgers, but with computers many business owners now use a file format such as Excel to keep their records. Of course, it is vital that you have these files back up on disks just in case your hard drive should crash. If you have any agreements with partners in your business or contracts with other firms, you should also keep these with your financial records as source documents.