The day-to-day running of any SMLLC includes keeping records. Many of these records relate to finances—such as income and expense records, and tax records. The financial records you’ll need to have will include the payments your business receives from customers or clients, and the payments your business makes to pay its bills. In other words, records of income and expenses.
Depending on what kind of business you have, expenses could include a wide range of things, from supplies, equipment, and inventory to rent, utility bills, and employee salaries. In addition, you may need to keep records of loan payments, insurance payments, and other important transactions with financial institutions, insurance companies, or other entities. Your income records, too, might be somewhat complicated, particularly if you receive payments subject to sales or excise taxes, or if you receive interim payments under contracts.
In spite of the potentially complicated nature of some businesses’ finances, you’re usually not legally required to keep your records, financial or otherwise, in any specific form. For example, if you wanted, you could throw copies of all your bills and receipts into a shoebox. However, even for the smallest SMLLCs, it's preferable to use at least a slightly more organized approach. One of the simplest ways to keep at least some financial records is to use the register of your business checkbook. Just as when you write checks and make deposits in your personal checking account, and then record each of those transactions in your checkbook register, you can also record that same basic information for your SMLLC in the business checkbook’s register.
However, while using a business checkbook register is simple, by itself it often isn’t sufficient for handling many basic but important details of business finances. There are often documents you will want to retain which show specific information about individual transactions. For many businesses, two obvious examples are copies of bills your business sends out to customers or clients, and copies of bills your business receives from creditors. In addition, if your business is involved in selling goods or products, or offering certain kinds of services, you may find yourself working with estimates, quotations, or purchase orders. In many cases, you’ll want to refer back to these various bills, estimates, and other documents for additional information; just knowing the amounts you received or paid won’t be enough.
With this in mind, a further simple idea for financial recordkeeping is to use two sets of file folders: one set for income you receive and one set for expenses you pay. You can write the name of a single client or creditor on each individual folder, put each client or creditor’s bills in the proper folder, and then put each set of folders in its own file drawer or bankers box. (If you're working with estimates or quotations, you could put those documents in the same folders as your bills to clients.) Alternatively, if your business is small enough, or has few enough transactions, you might be able to forego file folders, and instead use one or two three-ring binders, or even a few large envelopes, to store copies of bills and similar documents.
If your business deals with multiple customers on a daily basis—such as a retail store or a restaurant—you’ll need a system to handle daily receipts. Once again, a checkbook register alone likely won’t be enough to cover even basic recordkeeping for these types of businesses. Instead, you may need other documentation—at a minimum, information written on deposit receipts issued by your bank—where you break down the various items involved in each deposit. In addition, it is often worthwhile to maintain monthly and annual summaries of cash receipts, which can be helpful for financial analysis and planning.
For information on tax and property recordkeeping, check out the second part of this two-part article. There are also helpful financial recordkeeping publications available at irs.gov. For general information on running an SMLLC, including tax and property recordkeeping, check out the other articles in the SMLLC section of the Nolo website or pick up Nolo's Guide to Single-Member LLCs: How to Form and Run Your Single Member Limited Liability Companyby David M. Steingold (Nolo).