What Are Clean Books and Why Should You Keep Them?

Clean books are organized, up-to-date, and accurate financial records that help you make better business decisions. Here are 5 ways to keep your records clean.

Key Takeaways

  • Clean books are records that you can decipher, that are accurate, and that are up to date

  • Clean records ensure that you are making business decisions based on the best information available, and they help you with taxes and audits

  • 5 tips to clean up your books:

    1. Evaluate your current workflows

    2. Create a document management plan

    3. Understand record-keeping compliance rules

    4. Use the right software

    5. Work with a financial expert

Your financial records tell you a lot about the state and health of your business, but it’s not just the business numbers themselves that matter. You also need to have the right record-keeping practices to ensure you’re always on top of things. Otherwise, your financial processes can bring you down.

This is where clean books come into play. This guide will walk through what clean books are, why they’re so important for your business’s health, and a few ways to improve your systems.

What are clean books?

The definition of clean books is pretty straightforward: They are records that are well organized and well kept. There are also three further characteristics that make your books clean:

  1. You must be able to understand them: Books must be decipherable and usable, otherwise, they will be worthless.

  2. They must be accurate: Information must be correct to be useful for decision making.

  3. They must be up to date: Taking actions based on old information could lead to cash flow issues.

For all of these requirements to align, there needs to be someone in charge of the books who updates everything regularly. Sometimes, using a platform means that automation does some of this work for you, which can also improve accuracy, but you must have a plan for how financial data will be imported, updated, tracked, and analyzed.

Why you need good records for your small business

So, why are clean books so important? You need records that you can rely on. Otherwise, you could be making business decisions based on false, misleading, or outdated information. This can quickly lead to issues for the business, both now and in the long term.

Problems can quickly arise with your cash flow, which measures everything you owe and everything owed to you. When these records aren’t current and accurate, you may think you’ll have plenty of income to cover expenses at a given time, when really you need to reassess costs to stay cash-flow positive. You never want to be late paying your bills, and you need a way to track when customers owe you payments.

Another important reason you need clean books is for taxes. Tax management isn’t just a once-a-year consideration. You need to plan throughout the year to keep great records and stay compliant. You also may face an audit in the future, as many businesses do, and keeping clean records is a must for audits. Otherwise, the process will take a lot longer and can become expensive.

Even if you haven’t been the most organized with your books and everything seems to be fine, there will be a point of reckoning when you have to clean everything up. Small businesses must be diligent about staying compliant with government agencies to avoid legal action or lots of fees.

Clean books help you keep a firm grasp on where your business stands, but they’re also important in case outside parties need to view your financial standing, like a bank or investor. Don’t put off the problem any longer — get those books cleaned up now.

5 steps to clean up your books

The good news is that there are simple steps that will help you get there. Here are five ways to create better record-keeping systems:

1. Evaluate your current workflows

First, take a look at how you’re currently handling financial information. Are the systems, tools, or software you’re using getting in the way of clean books? Do you have a system in place to generate reports easily? How are you updating information? Identify areas of weakness that you need to change for more effective organization and updating. Then, create goals for your new workflows and technology integration.

2. Create a document management plan

The handling and storage of your business documents is a big part of record-keeping. Make sure you are using a tool that provides security for sensitive information and can integrate easily with other platforms and systems. You should have a plan for editing, reviewing, storing, sharing, and generating essential documents that will contribute to a better financial record-keeping system. A strong document management approach helps you keep everything updated, accurate, and organized.

3. Understand record-keeping compliance rules

Financial records are a key component of compliance for your business. You’ll have to follow different rules and regulations for record-keeping depending on your industry and whether or not you employ other people. For example, some business documents you need to keep for three years and some up to seven. There are also storage requirements for documents with sensitive information. You won’t have clean books unless you address each requirement that applies to your business.

4. Use the right software

The software you use to help manage accounting, payroll, taxes, and other functions will play a big role in your ability to keep your records clean. Consider these points when looking for the right software:

  • How quickly can I pull financial reports when I need them?

  • Does the platform’s interface provide easy answers to my business questions?

  • Will the tool help me meet deadlines and track vendor due dates?

  • What are the tool’s document storage practices?

  • What kind of automation is included and how will it help me?

These questions will get you thinking about how financial software will integrate with your workflows and provide solutions to your pain points.

5. Work with a financial expert

Keeping clean books takes time, knowledge of best practices, and consistency. Sometimes you may need to turn to a financial expert who will help you set up the right systems and get a better grasp on the state of your finances. Consider bringing in outside help when you’re having trouble managing everything on your own.

The team at Franco Blueprint is ready to help. We’ve worked with clients in many different industries, helping businesses update their accounting systems, ensure compliance, establish new businesses, and much more.

Schedule a free consultation with our team today to get started with cleaner books.

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