Category Archives: Ask SCORE

What Tax Documents Should You Keep?

And which ones should you shred?

If your filing cabinet is bursting at the seams, you’re not alone. As a small business owner, you have a lot of paperwork to keep track of – everything from business licenses, employee records, lunch receipts – the list goes on.

Some of the more challenging records to manage are your business’ tax documents and all of their supporting paperwork. Navigating tax document requirements is complicated and is often unchartered territory for a small business.

As a default, many business owners end up unnecessarily saving every last receipt for years and years. Or, they become overwhelmed and throw away important information.

Properly storing tax documents comes down to these four keys to success.

  • Know how long to store your tax documents
  • Understand which ones to store
  • Understand which ones are safe to shred
  • Devise a plan to do things right

How long should you hold onto tax documents?

The IRS can audit your return for up to seven years after you file if they suspect tax filings were made inaccurately or if you claimed a deduction you didn’t deserve. The period of limitations – the period of time you have to amend your tax return – expires three years after a return is filed. So, hang onto your tax returns and all supporting documents for at least seven years.

Which must stay and which can go?

Tax rules pertaining to financial records seem to change every year. The guide below will help you better understand the latest requirements and break down which documents you should store, which you can shred, and which belong under lock and key.

Store paper copies of these six documents.

The following documents are those you’ll want to keep literal tabs on – print, file and store these six tax documents every year.

  1. Form 1040
    Small businesses should store 1040 forms and any other supporting documentation for a minimum of three years.
  2. Schedule K-1
    Small businesses that file as an S-Corp or Partnership need to hold onto schedule K-1 documentation for a minimum of six years to show evidence of partnership shares.
  3. Employee Records
    Store your employee records, payroll reports and other similar employee record documentation for a minimum of seven years to be safe.
  4. Partnership Agreements
    It’s critical to maintain all partnership or LLC partnership agreements, and any amendments to those agreements, in hard copy for life of the partnership.
  1. S-Corp Acceptance Letters and Form 2552
    Maintain a copy of both letters and forms indefinitely if you have an S-Corp.
  2. Required Licenses
    Maintain hard copies of all state and local licenses that are required for you to operate your business.

Store these electronically. 

Not every business record requires you to maintain a physical paper trail. If you’re like many businesses and prefer to maintain your records and documentation electronically, you can keep these documents on a server or on the cloud.

  1. Transaction Statements
    Bank or credit card statements or other similar transaction statements are your back-up documentation to most, if not all, of your payables. Paper or electronic transaction statements should be filed and stored for at least three years after the filing of the transaction’s tax season.
  2. Legal Agreements
    Contracts or legally-binding documents should be stored for the life of the contact, and for years after in the event that those documents need to be revisited.
  3. Federal and State Tax Filings
    Maintain your electronic records for a minimum of three years – more if your business owns property, has employees, or has any inaccurate filings from the past.

If you do decide to store these documents electronically, it’s critical to the safety of your business that you protect your information with trusted, proven data security. A recent SCORE Webinar, ‘What Small Businesses Need to Know About Cybersecurity,’ touches on the back-up and recovery of sensitive documents.

Whatever electronic or cloud-based storage option you choose, it’s worth your time to research that platform’s data security and their process for safeguarding your business, as well as recovering your data should there be a security breach. Check out this list of business cloud storage providers to help you determine the safest way for your business to store sensitive information electronically and keep your tax documents and other business records in order.

These you can shred. 

There are several types of business records that do not need to be physically or electronically stored. In fact, some records containing personal information are many times better shredded than not. This excludes any tax documentation, legal documents, and most of the records listed above.

Always check with your financial advisor and accountant before you begin to shred what may be important documentation for your business to maintain. Typically, though, most businesses can shred non-essential documentation that lists personal information.

If you’re still not sure whether to keep those business records or store them away, even after the period of limitations has expired, hanging onto them for a while longer is never a bad option. And, digitizing your records will make it even easier to store past documents, taking the stress off of your filing cabinet.

Create a system to keep things organized.

Now that you’ve organized your business’ financial records and know which documents to store as physical copies, which ones can be stored electronically and which ones can be shredded, the next step is to come up with a system for filing and storing the right documentation. 

If you have a question about your business records, reach out to a SCORE mentor today!

Should I take on a business partner?

Are two heads always better than one?

When it comes to taking on a partner to start or grow a small business, there’s no right or wrong answer. 

Partners can complement each other’s management skills and bring benefits such as special expertise and client relationships. 

As with any relationship, there are trade-offs that must be carefully considered before deciding whether adding a partner is a wise move, and then you have to find the right person for the role.

If it sounds a bit like marriage, you’re not far off. Having the right partner can be a terrific advantage for a business. Making the partnership successful takes as much energy, effort, and positive feelings for one another as it does to make a marriage work.

There are several important things to consider before choosing a partner and entering into a business partnership.

Define your objectives. From the beginning, the partners need to be certain they share the same personal and financial goals and have comparable expectations for what the partnership will accomplish.

Define your roles. Each partner’s roles and responsibilities should supplement and enhance other’s, but not overlap. In other words, don’t get in each other’s way. Respect each other’s skills and abilities, but do your own job.

Share financial obligations and rewards. Be clear with each other about your financial obligations and how the rewards (i.e., the profit and owners’ equity) from the partnership will be shared. 

Sign a written partnership agreement. This is absolutely essential. Every partnership should be based on a well-written partnership agreement, prepared by an attorney with a great deal of experience in business law. It will be worth every dollar you spend to have it prepared. 

Share decision-making. Partners need to agree on all major decisions affecting the business, particularly those involving large investments of capital, changes in strategic focus, key management hires, and more. Decide in advance how you will make these decisions and know you will benefit by having more than one perspective. 

Understand that unhappiness happens. Any relationship between two people is bound to produce a bit  of friction and sometimes anger. More often than not, they are caused by miscommunication or misunderstanding. The sooner they are brought out in the open and discussed, the less likely they will lead to a major “blow-up.”

Provide an “escape hatch.” Every good partnership agreement contains a “buy/sell” provision in case the partnership doesn’t work out, or one of the partners needs to withdraw from the business for any reason. 

When there are disagreements, knowing the consequences of not reaching an agreement is often all it takes to help partners find a reasonable compromise.

My first business was a 4-way partnership that included an Angel investor. Before the investor wrote his check, and the four of us got down to business, we hired an experienced business attorney to write our partnership agreement. He asked a lot of questions and we talked among ourselves until we had the answers. 

We agreed on our roles, our financial obligations and potential rewards. When the time came to dissolve the partnership, everything we had to do was right there in the agreement. 

If you would like to meet with an experienced business person who has volunteered his or her time to help people like you, reach out to a SCORE mentor today! SCORE’s mentoring services are free.

How can I keep my business going?

by Ken Sethney, Volunteer Business Mentor, SCORE Kitsap

Every business owner I’ve had a conversation with in the last month or so is struggling to answer that question. It doesn’t matter what they sell, products or services, they are struggling to find answers to very difficult questions. Almost everyone in start-up mode has simply stopped. 

So, what should they do? What should you do? My suggestion is to keep moving forward. 

One of my SCORE clients owns a well established business with several employees. She and her team provide therapeutic services, but they don’t qualify as “essential.” 

After giving the shelter-in-place problem some thought, she decided to focus on the sale of complimentary products the customers used to purchase at the front counter as they left her facility. 

The products are promoted online. Orders are placed online or by telephone, and they are delivered by a very essential delivery service. Her team is working. Revenue is being generated. Her client base feels like they are being served by people who really care. 

A friend of mine owns a coffee shop/café. She didn’t have to close her doors, but she had to stack up the tables and chairs. People walk up, place orders, and take their coffee and treats out the door. Sales aren’t normal, but they are a lot better than zero. 

Many years ago, I had to deal with an emergency. The fellow I worked for gave me a call and told me that he was closing his advertising agency for medical reasons. There wasn’t a pandemic, but he lost his company and 36 people lost their jobs. I wasn’t a happy guy. 

That said, after two days of wondering what I should do, I had a plan. I couldn’t afford to buy the agency, so I would create my own. I decided to create a virtual ad agency staffed by creative people willing to be independent contractors. 

I knew lots of artists, illustrators, photographers, and more, that didn’t want to work for anybody full time. I would call the VP’s of Sales & Marketing for the top 50 companies in Orange County California and see if I could get some projects. 

I had never made a sales call in my life, but I know I would have to do it. In three weeks, I had my first job. In a few months, I didn’t have time to make any more sales calls. I had lots of projects and my clients were calling me to see if I could help with something new. 

As a volunteer business mentor, I’ve met with hundreds of people in Kitsap County over the last 5 or 6 years. Many have started businesses or grown the ones they owned. 

If you asked me for advice, I would encourage you to find a new way to use your skills and abilities to serve your customers or find new ones. I would ask you what you might do differently now than you had done in the past. Maybe your idea would help a little while we’re all waiting to get our economy back up to speed. Or, maybe it would open a new path that would help you make your future bigger and better than it had ever been. 

If you would like to meet with an experienced business person who has volunteered his or her time to help people like you, reach out to a SCORE mentor today!

Ken Sethney is a volunteer business mentor and branch manager for SCORE Kitsap. He started his first business in 1976, and several more after that. Contact him by email at ken.sethney@scorevolunteer.org.

How to develop a successful new product.

Developing and launching a new product requires research, resources, and a determination to follow through despite roadblocks and setbacks. If you have a product idea, how can you better ensure your development effort goes smoothly, and the end result is a win for you and your company?

While product development comes with varying levels of complexity that depend on the type of product you plan to create, several key ingredients for success remain universal. Continue reading

Yes, you can manage your time more effectively.

With so many responsibilities as a business owner, it’s easy to get overwhelmed and fall short on what you want to accomplish. If you’re a new business owner who formerly worked for someone else, you may have discovered that managing time has become more challenging. 

That’s natural. After all, you’ve gone from having your work schedule and priorities set for you to needing to prioritize every project and task related to running your business. Time management doesn’t come naturally to everyone, but it’s an essential skill that can be developed with some attention and effort.  Continue reading

What resources help women entrepreneurs succeed?

According to the 2017 State Of Women-owned Businesses Report commissioned by American Express, women-owned businesses now account for nearly 40 percent of all companies in the United States. With the increase in the number of women-owned firms a whopping 114 percent (compared to the 44 percent increase among all businesses) from 1997 to 2017, it’s evident women entrepreneurs are a powerful force within the U.S. economy.   Continue reading

What is the SCORE Business Learning Center?

The SCORE Business Learning Center (SBLC) provides aspiring and existing small business owners the business strategies and tactics needed to make sound decisions and achieve greater levels of success.

The SBLC supplements the business resources available on score.org. It fills the gap between the high-level content on our website and the personalized expertise obtained from a mentor.

At the end of a course, users will feel they have a better understanding of their chosen topic and the resources available for continuous learning. They will also have a mentor they can work with to apply the learning to their business.

You will find it here… https://www.score.org/biz-learning-center

Ask SCORE: How can I win in the gig economy?

The “gig economy” — the market for individuals providing services or working on projects on a freelance on-demand or short-term contract basis — has been a growing trend. While there are no official gig economy statistics available to measure its prominence, we can make some assumptions about its increasing popularity based on other available data. 

According to information reported by the United States Census Bureau, the number of non-employer businesses, the group of individuals most likely to work on gig basis,  was 24,331,403 in 2015. That’s 10% more than the 22,110,628 non-employer businesses in 2010.

And opportunity abounds for independent professionals who take on gig assignments. Many businesses outsource work to independent contractors and freelancers when their staffs are overwhelmed and to avoid the costs of benefits and ongoing payroll that come with hiring new employees.   Continue reading

Ask SCORE: How can veterans excel as entrepreneurs?

In the course of serving our nation, veterans learn valuable skills and self-discipline that they can carry through to their post-military careers. One professional path that many veterans take is entrepreneurship. 

According to the most recent U.S. Census data, in 2012, the number of veteran-owned businesses was 2,521,682 (9 percent of all companies in the U.S.). Those businesses employed over 5 million people.  Continue reading