Owning and operating a small business is not an easy task. It is one that involves a lot of planning, coordinating, managing, and paperwork. Lots and lots of paperwork. One of the many hurdles facing small businesses is figuring out which documents to keep. With this in mind, we’ve selected five types of records that are essential for legal compliance and staying on track.
1. Accounting Records
The purpose of accounting records is to record your business’s transactions. These records are the first of our small business accounting tips and will serve several purposes internally as well as externally:
- They serve as a quick gauge of your business’s financial health (profitability, long-term success, patterns, and trends).
- Accounting records provide information about your expenses, revenues, and equity which are important considerations for decision-making.
- Businesses are required by law to keep financial records that show income and expenses.
- These records will be used to file your taxes and are important for Greeley business accounting.
If you work with and get paid by the client directly, then your business should also have two specific accounting records: the detailed project contract or estimate and the invoice. A detailed project contract or estimate is a legal document that summarizes the important aspects of a job to be done for a client. It serves as a binding agreement that will protect your company should an issue arise. An invoice is a document that your business will use to charge clients for products or services.
2. Bank Statements
Along with accounting records, your business will also need to have records of your accounts with the bank, in the form of bank statements. These statements should be compared to and reconciled with your accounting records in order to find mistakes and errors. Like accounting documents, bank statements serve several purposes:
- They allow you to track your business’s financial health, growth, and progress.
- You will use them to file taxes.
3. Legal Documents, Permits, and Licenses
Just as you need a driver’s license to operate a car, you need a business license to operate a business. You may need different licenses and permits for the state versus federal levels depending on the type of business you are operating and your location. You will also need to register your business according to the rules of your area and your chosen structure. Your company will most likely fall into one of the following structures:
- Sole proprietorship: gives you full ownership of your business and allows you to register a “doing business as” name for your service or product.
- Partnership: provides some additional legal protection for you and a partner; however, this structure does require some additional tax reporting.
- Limited liability corporation (LLC): (formed by one or multiple parties) mainly protects the owner’s/owners’ personal property should legal action be taken against the business, without the effort involved in registering a full corporation.
- C corporation: requires extensive documentation and can sometimes lead to double taxation of company earnings.
Depending on which of these structures you choose, you may also need to have company bylaws or an operating agreement that outline your business’s policies, structure, and ownership. C corporations, and in most states LLCs, will need company bylaws and an operating agreement, but it is not a bad idea to have these documents on hand even if you are not legally required to. Doing so can help you to pinpoint and resolve any issues before they have time to develop into crises.
No matter how you structure your business, if you are doing so with a partner–regardless of how much you trust them–you need an ownership/partnership agreement which outlines key aspects of your partnership (including division of ownership, profit, and loss; and roles and responsibilities of each partner; and guidelines for handling disputes or withdrawal of a partner). Lastly, if your business relies on outsourcing, you will need a vendor agreement that outlines how your relationship with the vendor will operate. Vendor agreements also provide a measure of protection to your business should vendor issues impact your customers.
4. Insurance Documents
To protect you and your business’s assets you will want to invest in insurance. There are different types of insurance that cover different aspects of your business. General business liability insurance will protect your business from losses, although you may also want to invest in other policies like renters or auto insurance. In order for you to use your business insurance, you will need to have proof of coverage kept somewhere safe, perhaps in multiple places. Your insurance can also protect you in legal disputes and accidents so make sure that you have some form of insurance for your business.
5. Other Business Documents to Consider
One other document to keep on hand is a Non-Disclosure (NDA) or Confidentiality Agreement.
- If you plan to hire any employees or contractors with whom you will share sensitive information about your business. You will need an agreement to protect the privacy of any information you share with the other party.
- If you plan to hire employees, you will need to draft an employment agreement. This document outlines the terms of employment including compensation, expectations, and position parameters.
- If you plan to hire outside contractors, you will want to have an independent contractor agreement laying out the terms of your relationship. Like an employment agreement, an independent contractor agreement outlines compensation, expectations, and project parameters and details.
With these guidelines in mind, you’re well equipped to tackle your business documentation and standard Greeley business accounting practices. Should you decide to hand off bookkeeping and documentation to a team of experts, give the specialists at Yeater & Associates in Greeley a call at 970-378-4830.