How to organize your small business records
Dealing with the paperwork is a large part of running a small business. The following table suggests essential file drawers to label in an actual file cabinet or two and what must-keep information to file in each:
| File Drawer | What To Put There | File Drawer | What To Put There |
| Accounting and bookkeeping records | Sales and expense information, inventory, ledgers, income statements, balance sheets, cash flow statements, and other financial statements. |
Forms used in the business | Standard forms that you use in the business, such as purchase orders, sales agreements, offer letters to new employees, and employment applications. |
| Bank records | Bank statements, cancelled checks, bank reconciliations, notices from and to your bank, deposit slips, and any loan-related notices and documents. |
Intellectual property records | Trademark applications, copyright filings, patent filings and patents, licenses, and confidentiality or non-disclosure agreements. |
| Contracts | All contracts you have entered into, including: real estate leases, equipment leases, purchase agreements, sales agreements, joint venture agreements, work for hire agreements, and other contracts. |
Marketing and advertising | Marketing brochures, print ads, Web banners, text of radio ads, and records of other marketing materials. |
| Corporate records | For corporations: Articles of Incorporation, bylaws, shareholder minutes and consents, board minutes and consents, state filings, Action of Incorporator, and amendments to the various corporate documents. For non-corporations: Documents may include partnership agreements, LLC documents, consents of the owners, and similar records. |
Permits and licenses | Permits, licenses, or registration forms that you need to operate the business, whether required under federal, state, or local law. |
| Correspondence | Letters sent by mail, faxes, and important e-mail that you don’t want to lose and want to keep in hard copy. These include both correspondence you receive and send. |
Stock records | The company’s Stock Ledger where you record all stock and other securities transactions, copies of stock certificates, options and warrants, and copies of all securities law filings. |
| Employee records | Completed employment applications, actual employment offer letters, employee handbook or policies, employment agreements, performance appraisals, employee attendance records, employee termination letters, W-2s, and any settlement agreements with terminated employees. |
Tax records | These records include quarterly and annual federal and state income tax filings, W-9 filings for independent contractors, records supporting tax filings, withholding tax records, and other tax-related matters. |
Differences between C and S corporations for a small business
A corporation is a separate legal entity formed under a state corporation law. Your small business can register as a C corporation or an S corporation if you go the corporation route, which you may want to do to shield shareholders from the corporation’s debts and liabilities.
C corporations
The following key points characterize C corporations:
-
Limited liability: Generally, the shareholders, officers, and directors of the corporation aren’t personally liable for the corporation’s debts and liabilities.
-
Perpetual existence: In contrast to partnerships and sole proprietorships, corporations generally can last forever unless they’re voluntarily dissolved.
-
Control and management: A corporation’s overall management is vested in the board of directors chosen by the shareholders. The board of directors elects the corporation’s officers, who handle the business’s day-to-day affairs under the board’s general direction.
-
Shareholders’ rights: Shareholders typically have various rights, including the right to elect directors, receive information, inspect corporate records, vote on fundamental business decisions (such as mergers and liquidations), and share in distributions.
-
Owners and profits: The owners of the corporation are the shareholders who have received stock in the corporation.
-
Corporate formalities: You should observe various corporate formalities, such as maintenance of separate books, records, and accounts; completion of various governmental filings; and periodic meetings or written consents of directors and shareholders.
-
Stock transferability: Stock certificates are signs of ownership. Their transfer may be restricted; for example, the corporation may have a right of first refusal on transfer. And federal or state securities laws can limit stock transfers.
-
Capital formation: The corporate entity accommodates a wide variety of forms of capitalization, such as common stock, preferred stock, stock options, warrants, and convertible securities.
-
Employee stock ownership: Corporations provide the best vehicle to give employees equity interests in the business. Corporations allow tax-advantaged stock option grants, which aren’t available for other entities.
-
Tax: C corporations are taxed at the corporate level. The government taxes most dividends as income to the stockholders.
S corporations
An S corporation is a regular corporation, but the business’s income passes through to the shareholders, and the shareholders pay income taxes based on their portion of the corporate income. In order to become an S corporation, you must follow a number of key rules, including
-
IRS election: All shareholders must sign and file IRS Form 2553 with the IRS. You may also need to make an election with your state of incorporation. New corporations must file the IRS form by the 15th day of the third month of your tax year (basically, a 2 1/2 month window).
-
Number of shareholders: An S corporation can have no more than 75 shareholders.
-
One class of stock: An S corporation can only have one class of stock, although certain differences can exist in voting rights among the shareholders.
-
Restrictions on the type of shareholders: Generally, corporations, various trusts, and nonresident aliens may not be shareholders in an S corporation.
Key sections of a small business plan
If you want investors for your small business, you need to write a business plan so you have something to present to bankers and potential investors. The format of every good business plan, although not set in stone, tends to run along the same basic lines — it shouldn’t have anything that surprises investors.
The business plan format is fairly standardized, typically containing the following key sections:
-
Cover page: Contains contact information and a statement that the plan is deemed confidential
-
Table of contents: Enables your readers to quickly find the exact information they’re looking for
-
Executive summary: Explains, briefly, your business’s prospects, needs, and situation
-
Company description: Contains a historical account of the company, as well as its future prospects
-
The product or service: Explains what is unique about the products or services that your business plans to deliver
-
The market: Creates a picture of the market in which your business competes
-
Marketing: Informs your reader of how you plan to capture your business’s potential market (packaging, distribution, advertising, Web marketing, and so on)
-
Management/ownership: Introduces the people holding leadership positions in the business, their relevant experience and credentials
-
Competition: Focuses on your competitors’ strengths and weaknesses
-
Financial statements and projections: Includes a lot of numbers (hopefully black), like your balance sheet, income statement, cash flow statement, and financial forecasts
-
Appendices: Contains résumés of key personnel, an organizational chart with positions and responsibilities, extended market information, and other data to back up the claims in your business plan
