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February
2007






















Life Goals

Recordkeeping: The Ultimate in CYA
(Cover Your Assets)

Recordkeeping is one of those things that most beginning entrepreneurs don't even think about. As the need for recordkeeping dawns -- usually as the result of harping by the entrepreneur's accountant, banker, attorney -- a recordkeeping system gradually evolves -- albeit reluctantly.

To the beginner, recordkeeping looks like just a lot of useless work. The typical thought -- "If I have to keep records on every little thing I do, when am I going to have the time to do anything?"

But somewhere along the way -- maybe as the result of wasting a day-and-a-half looking for a piece of correspondence you just know you saved -- or the result of losing a court case because you couldn't find the records that would have proved you right -- or the result of an IRS agent disallowing some of your expenses because you didn't have the backup to prove they were legitimate -- or the result of having a bank loan called because the bank sees that you have no measures of your cash needs -- the importance of recordkeeping starts to sink in.

Good recordkeeping does require time and effort -- but it's also necessary. How much time and effort it requires depends on how you approach it. The fundamental axiom of Quality applies as much to recordkeeping as to every other business process -- it's always easier to do things right the first time.

Just remember that at a bare minimum, “keeping the books” is #1. It is the most important recordkeeping you will do; note that this is not the same thing as keeping a checking account. Don’t try to reinvent the wheel – pick up QuickBooks and adjust it to your specific business. Keeping the books is imperative because it will tell you the answers to your business’ three most important questions:

    1.Are you profitable?

    2.Where is your revenue coming from?

    3.Where do you spend the most money?

After making sure you have the accounting organized, look at the piles of papers in your office. You know what’s in each pile, right? Great! What if you have to go into the hospital for an appendectomy? Could your spouse find needed paperwork? Invest in a file cabinet, and file those papers away in an organized fashion that would allow anyone to find what was needed.

How long do you have to keep things? Here’s a partial list for you to consider. Be sure to check with your lawyer, accountant and/or financial planner for a more complete listing.

Business Document To Keep For One Year

  • Correspondence with Customers and Vendors
  • Purchase Orders

Business Documents To Keep For Three Years

  • Bank Statements and Reconciliation's
  • Employee Personnel Records (after termination)
  • Employment Applications
  • Expired Insurance Policies
  • General Correspondence
  • Internal Audit Reports
  • Petty Cash Vouchers
  • Time Cards For Hourly Employees

Business Documents To Keep For Six Years

  • Accident Reports, Claims
  • Accounts Payable Ledgers and Schedules
  • Accounts Receivable Ledgers and Schedules
  • Cancelled Checks
  • Cancelled Stock and Bond Certificates
  • Employment Tax Records
  • Expense Analysis and Expense Distribution Schedules
  • Expired Contracts, Leases
  • Inventories of Products, Materials, Supplies
  • Invoices to Customers
  • Notes Receivable Ledgers, Schedules
  • Payroll Records and Summaries, including payment to pensioners
  • Sales Records
  • Travel and Entertainment Records

Business Records To Keep Forever

While federal guidelines do not require you to keep tax records "forever," in many cases there will be other reasons you'll want to retain these documents indefinitely.

  • Audit Reports from CPAs/Accountants
  • Cancelled Checks for Important Payments (especially tax payments)
  • Cash Books, Charts of Accounts
  • Contracts, Leases Currently in Effect
  • Corporate Documents (incorporation, charter, by-laws, etc.)
  • Documents substantiating fixed asset additions
  • Deeds
  • Depreciation Schedules
  • Financial Statements (Year End)
  • General and Private Ledgers, Year End Trial Balances
  • Insurance Records, Current Accident Reports, Claims, Policies
  • Investment Trade Confirmations
  • IRS Revenue Agents’ Reports
  • Journals
  • Legal Records, Correspondence and Other Important Matters
  • Minutes Books of Directors and Stockholders
  • Mortgages, Bills of Sale
  • Property Appraisals by Outside Appraisers
  • Property Records
  • Retirement and Pension Records
  • Tax Returns and Worksheets
  • Trademark and Patent Registrations

Personal Document To Keep For One Year

  • While it's important to keep year-end mutual fund and IRA contribution statements forever, you don't have to save monthly and quarterly statements once the year-end statement has arrived.

Personal Documents To Keep For Three Years

  • Credit Card Statements
  • Medical Bills (in case of insurance disputes) 
  • Utility Records
  • Expired Insurance Policies 

Personal Documents To Keep For Six Years

  • Supporting Documents For Tax Returns
  • Accident Reports and Claims
  • Medical Bills (if tax-related)
  • Property Records / Improvement Receipts
  • Other Tax-Related Bills

Personal Records To Keep Forever

  • CPA Audit Reports
  • Legal Records
  • Income Tax Returns
  • Income Tax Payment Checks
  • Investment Trade Confirmations
  • Retirement and Pension Records

Special Circumstances

  • Car Records (keep until the car is sold)
  • Credit Card Receipts (keep until verified on your statement)
  • Insurance Policies (keep for the life of the policy)
  • Mortgages / Deeds / Leases (keep 6 years beyond the agreement)
  • Pay Stubs (keep until reconciled with your W-2)
  • Property Records / improvement receipts (keep until property sold)
  • Sales Receipts (keep for life of the warranty)
  • Stock and Bond Records (keep for 6 years beyond selling)
  • Warranties and Instructions (keep for the life of the product)
  • Other Bills (keep until payment is verified on the next bill)
  • Depreciation Schedules and Other Capital Asset Records (keep for 3 years after the tax life of the asset).

Life goals. Money goals. In that order.

Call Innovative Financial today at (303) 275-7170
for a free consultation - and put your mind at ease.

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