Avoid the Paper Dragon, Keep Good Records

I am retired and I decided to start a home-based business. I discovered early in my business that I need to keep good records for Uncle Sam. I need to keep the business records separate from my personal accounts. I set up a business checking account and applied for a business credit card. Then I used a paper and pencil system for the first year. Now I am using both digital and paper tracking systems.

This article is a general assessment of the choices you need to make before you let it get ahead of you. The “Paper Dragon” will eat you alive without mercy if you get behind in the process. But don’t obsess over it. Just begin slowly with your basic checkbook register, your rolodex file, and your filing cabinet for receipts. Then branch out from there.

Some of the items to track are as follows:

  • Money: What is coming in and going out
  • Client information
  • Potential client information
  • Employee information
  • Contractor information
  • Receipts
  • Copies of Invoices
  • Tracking payments and collection


The above list is just to tickle your imagination. It can get overwhelming rather quickly if you don’t have a good system tracking important information.


Use Your Computer?

Use Your Computer?

Today you have a choice of manual and computerized record keeping. In addition, if you use computerized systems (which most people do), you can keep track of your records in the cloud as well. By “cloud,” you can use Dropbox, Google Drive, or iCloud. These services that are offsite will save space on your home system, and keep everything super secure if there should be a problem such as a fire or theft.


What System Is Right for You?

So how do you choose what is right for you? It doesn’t matter what kind of business you have; you will need to keep complete records. If you have a very small business you may choose to use a manual form of record keeping. I think most home based businesses for retirees would choose this method. I used two systems, Dome and Tax MiniMiser. Both are good products and excellent for the beginner when starting a new business.


A larger business will benefit from a cloud based record keeping system. Don’t let the term “cloud” scare you. All that is required is using Dropbox, Google Drive, or the Apple cloud service. It works like a separate drive on your computer, but it is off-site.

woman working from home

You may be able to hire a virtual assistant to help you with this chore. Working on the web allows them to have more than one client and you gain access to administrative assistances at a reasonable cost.


What Does Record Keeping Mean?

It means that you have a process that keeps records organized for optimal retrieval. For example, if you sell widgets, you need to keep track of the inventory, income, expenses and customer records. However, if you’re a coach, you’re going to want to keep track of individual clients and each session you have with them.


What Type of Records Do You Have?

There are customer records, sales records, correspondence, inventory and financial records that you will need to keep. Make a list of the different types of records your business will generate so that you can find or create a system that works.


How Do You Work Best?

The perfect system works in the way you do, not in the way other people tell you to work. So your first course of action is to be honest with yourself. Will you keep records organized if you have to scan them and then upload them to a cloud system?


Will You Outsource?

Can you find someone to help you with the record keeping? If you find an expert to help you such as a business manager, why not let them choose the system to use, set it up, and you follow the expert to successful record keeping? As a retired home-based business owner, you could look into hiring a Virtual Assistant who will offer the service at a reasonable price per hour.


Keeps Everything Separate

You need to keep both business and personal records, and the system you use should work with both in a seamless way. As you go through your day, note each time a record is needed or created. Use those notes to determine the best way to keep those records organized.


Look at Business Software

You may already have certain business software that keeps track of certain functions of your business, such as accounting and bookkeeping. This software might have additional “add-on” tools that will help everything work seamlessly to keep track of financial records.

The simple approach is to use a digital check register with categories established to track your checks for expenses and your income. When I had a Windows machine, I really liked using Quicken for Home and Business. It had the categories set up and downloading the bank records was a snap. Click here for a good book to learn how to use this software.


Different Solution for the Mac

When I changed over to an iMac, an Apple machine, the Quicken product was buggy and light on categories. Now I use iBank. I had to create some categories and it is slightly more difficult to use when compared to the Windows product. On the Mac, you can use a window os on the Mac but it will expose your computer to viruses. I chose not to use it because that is one reason why I chose to use Apple. To see the iBank in Amazon, click here.


Digital Accounting System

For a more robust accounting system, QuickBooks is a popular choice over the Peachtree system. It is easier to use and is a universal product for bookkeepers. It should be easy to find a virtual bookkeeper to operate the system. If you like accounting, click here for the software from Amazon. All of their digital products are easily downloaded from their website. Click here for the PC version. Click here for the Mac version.


Pencil and Paper Record System

This system is based on the principal that a dull pencil is better than a sharp memory. I began my record system using the Dome paper system. It was compact and easy to use. Click here for the Dome product.

I switched to the Tax Minimizer system that fits in a standard sized notebook. Each page has space to store receipts for the month. You write in the date, check number, name of product and the expense under basic business categories. I think the categories really helps to organized expenses that is easily transferred to the business worksheet C for your IRS 1040.

Then, if I am audited, I have the receipts to prove my expenses and I sleep better at night. They also have an excellent record system for recording milage, purpose of he trip and the expense. The IRS wants to see a running tally of personal, business, medical and charity use of your vehicle. Take a look and give it a try. Click here for the TaxMiniMiser record system.


Legalities Matter

In some cases, there are legal requirements for certain types of records. If you have people’s personal information, you will want to keep it under lock and key if maintained as physical records. If such records are cloud-based, make sure your choice of service meets all the legal requirements for security required by law in your field. Click here for a good book on the legal and tax records is here.


Developing a record keeping system that works for you is like eating a watermelon. You cannot eat it without the seed. Record keeping is something that you will have to get the hang of eventually. But, it’s important to use a system that works for you, as well as meets all the legal requirements for your business according to the IRS and local taxing authorities. For some people, a paper system works better than a computer system. It’s up to you.







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