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Complete and accurate financial recordkeeping is crucial to your business success for a number of reasons:

• Good records provide the financial data that help you operate more efficiently, thus increasing your profitability. Accurate and complete records enable you to identify all your business assets, liabilities, income and expenses. That information, when compared to appropriate industry averages, helps you pinpoint both the strong and weak phases of your business operations.

• Good records are essential for the preparation of current financial statements, such as the income statement (profit and loss), balance sheet and cash-flow projection. These statements, in turn, are critical for maintaining good relations with your banker. They also present a complete picture of your total business operation, which will benefit you as well.

• Good records are critical at tax time. Poor records could cause you to underpay or overpay your taxes. In addition, good records are essential during an IRS audit, if you hope to answer questions accurately and to the satisfaction of the IRS.

What Exactly Will Your Records Tell You?

The specific types of records a company needs depends on a number of factors, such as the type of business, the company's goals, management's needs and interests, and cost factors. Based on the relevant factors, your accountant can help you determine what records to keep and what information they should provide. In fact, you might want to update your recordkeeping procedures to reflect your current business needs.

Here are just some of the questions that might be considered in assessing your recordkeeping needs:

• How much income are you generating now and how much income can you expect to generate in the future?

• How much cash is tied up in accounts receivable (and thus not available to you) and for how long?

• How much do you owe for merchandise? Rent? Utilities? Equipment?

• What are your expenses, including payroll, payroll taxes, merchandise, advertising, equipment and facilities maintenance, and benefit plans for yourself and employees (such as health insurance, retirement, etc.)?

• How much cash do you have on hand? How much cash is tied up in inventory? What is your actual working-capital budget?

• How frequently do you turn over your inventory?

• Which of your product lines, departments or services are making a profit, which are breaking even, and which are financial drains?

• What is your gross profit? What is your net profit? What is your taxable income?

• How do all of the financial data listed above compare with last year - or last quarter? How do they compare with the projections in your business plan?

• How do all the financial data compare with those of your competitors? With those of the industry?

Luca Pacioli (1447-1517):  The Italian inventor of double-entry accounting.