We've been getting a lot of small business clients who need help cleaning up their books. In most cases, they needed our help because they had been doing it themselves. They thought, why pay for a bookkeeper?

When your books are messy, you're always putting out fires. You never know how much money you have, so you look online at your bank account — forgetting that Amazon doesn’t charge you until the items are boxed up. Remember the saying about good intentions and the road to hell? That was inspired by a true story involving a small business owner.

Drawing from personal experience, I remember being overwhelmed by boxes and boxes of paperwork that I didn’t know what to do with. Businesses are required to hold on to everything forever, I figured. The good news is that no, not forever — but there are certain requirements:

  • Employee earnings: You should maintain employee earnings records for a minimum of four years. (Be sure not to throw away anything relating to unclaimed property, like an unclaimed paycheck.)
  • Employee timecards: If your business is subject to the Fair Labor Standards Act (engaged in interstate commerce), keep the cards for at least three years in case questions arise.
  • Personnel records: Hold on to these for three years after an employee has left.
  • Employment tax records: Employment tax records should be kept for four years after the date the tax was due, or the date it was paid, whichever is longer.
  • Employee business expenses: Keep mileage logs and other receipts for three years.
  • Sales tax returns: State regulations vary. New York requires sales tax records to be retained for three years, while California requires four.
  • Business property: Records used to substantiate the cost and deductions (such as depreciation, amortization and depletion) associated with business property must be maintained to determine the basis and gain (or loss) on the sale. Keep these for as long as you own the asset, plus seven years, according to IRS guidelines.

Retaining important records is not the only aspect of small business bookkeeping that owners (understandably) mess up. It takes an unbiased professional with a fiduciary mindset to bring up things we conveniently don’t ever seem to ever bring up to ourselves, like:

  • Not using a payroll service. A lot of small business owners think payroll services are prohibitively expensive. They may not be wrong. However, with the way the tax laws change all the time, it's important to use a service that keeps on top of current events. In my experience, payroll services are worth every penny.
  • Using personal accounts for business expenses and vice versa is bad. It’s not uncommon for small business owners to commingle their personal money with the business’ money. It’s very tempting to say, “You know what? As long as the bills get paid, it doesn’t matter.” Even if they're categorized properly, it's better to have two separate banking accounts for personal and business — and the same goes for credit cards, which is where I see the most commingling.
  • Not closing up your books every month is important. In order to get accurate information from your numbers, your books have to be reconciled every month. If a bank requests to see a Profit and Loss report, you’ll be reassured by the soundness of the data.
  • Not working with a CPA. It’s tempting to think that an online tax preparation service will save you a lot of money, but they charge fees, too — and they’re not that different from an accountant’s fees. Many people have ended up backing out of their online tax service in favor of seeing a brick-and-mortar CPA. That way, if their taxes contain any gray areas, they can get the answers from someone who has seen how local tax laws play out in reality.

These are just some of the things to consider if you’re thinking about the state of your books. Gaining an outside perspective may be scary and/or painful, which is why it’s so important to choose a professional who has a fiduciary responsibility to their clients. It’s really not cost-effective to keep learning from your mistakes.

Judy Heft is the CEO/founder of Judith Heft & Associates, a financial and lifestyle concierge celebrating 26 years in business helping people stay financially organized. She is a certified money coach and the author of “How to Be Smart, Successful and Organized with Your Money” and the co-author of “Mastering Your Financial LifeCycles.” She is the host of the podcast “Mastering your Financial Life.” For more information, visit www.judithheft.com.

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