The importance of keeping adequate records cannot be stressed enough. Without records, you cannot see how well your business is doing or where it is going. At a minimum, records are needed to substantiate:  your tax returns under federal and state laws (including income tax and Social Security laws), requests for credit from vendors or a loan from a bank, and claims about the business, should you wish to sell it. Most important, however, you need them to run your business successfully and increase your profits.

How do I set up the right recordkeeping system for my business?

The kind of records and how many you need depend on your particular operation. The SBA's resources and an accountant can provide you with many options. When deciding what is and is not necessary, keep in mind the following questions: 1) How will this record be used?  2) How important is this information likely to be?  3) Is the information available elsewhere in an equally accessible form?

What financial statements will I need?

You should prepare and understand two basic financial statements: 1) the balance sheet, which is a record of assets, liabilities, and capital, and 2) The income (profit and loss) statement, a summary of your earnings and expenses over a given period of time.

What kind of profits can I expect?

This is not an easy question to answer, but there are standards of comparison called industry ratios which can help you estimate your profits. Return on Investment (ROI), for example, estimates the amount of profit gained on a given number of dollars invested in the business. These ratios are broken down by Standard Industrial Classification (SIC) code and business size, so you can look up your type of business to see what the industry averages are. These figures are published by several groups and can be found at your library. Help is also available through the SBA and the trade associations that serve your industry.