In this episode of Toni Talks, enrolled agent (EA) Toni Covey is joined by special guests Eliot Thomas, Esq. and Bookkeeping Manager Troy Butler to discuss critical bookkeeping and recordkeeping for business owners and investors.


Updated October 13, 2020

For business owners and investors, proper recordkeeping and bookkeeping is a critical component of asset protection, tax planning, and securing funding and lender approval. Of course, a thorough, accurate, and detailed set of books is an important piece of any business, but sometimes clients are surprised to find that there are other pressing recordkeeping requirements that must be met.

Corporate Meeting Records

One of the foundational pieces of any asset protection game plan is maintaining compliance. Complying with federal and state regulations ensures the integrity of your business’ corporate veil. The “corporate veil” is a metaphor relaying the idea that there is a distinction between a corporation and its owners. If your corporate veil is “pierced,” this means that the owners of the business can become personally liable for the debts of that business.

Obviously, this would be a major asset protection misstep. To maintain the integrity of their corporate veil, business owners must keep an “arm’s length” relationship between their business and personal lives and assets. A simple but powerful piece of documenting that “arm’s length” relationship is holding required meetings and documenting those meetings by keeping meeting minutes.

Corporations are required to have at least one meeting per year. Here at Anderson, we actually recommend that you hold monthly, or at least quarterly, meetings. For each meeting, thorough notes (or “minutes”) should be kept to memorialize the fact that the meeting took place and any decisions that were made. Beyond just monthly or quarterly meetings, corporate meetings and accompanying meeting minutes should happen whenever there’s a significant event. If nothing significant comes up, then you have a meeting to document that nothing significant comes up. Meeting this requirement and documenting it thoroughly with proper meeting minutes is crucial to demonstrating the “arm’s length” relationship at which you hold your business.

In a corporation, there are shareholders who elect directors. The directors then elect officers. The officers then manage the day-to-day operation of the business. For corporations, you’ll at minimum have an annual shareholders’ meeting and annual directors’ meeting. If you set up your corporation with Anderson, your first meeting is “baked in”: your organizational meeting wherein you set forth your initial resolutions, opening a bank account, having medical reimbursement and accountable plans, etc.

Meeting Misconceptions

Many business owners and investors make the mistake of thinking that using an LLC for their business or investing will relieve them of the formalities that are associated with corporations, including these recordkeeping and meeting formalities. This couldn’t be further from the truth, and failing to hold those meetings and keep documentation is a huge mistake.

Another common misconception about requirements for holding meetings and keeping meeting minutes is that there must be a certain level of formality, like reserving a venue and wearing business attire. In fact, if your business has just you and someone else as the shareholders in a corporation, then the meeting can just be you two talking. If you hold all the offices in your corporation, you hold the meeting with yourself and document the decisions made. In this way, you treat your business like a business and shore up your asset protection.

The Importance of Bookkeeping

Keeping accurate books is key to the health of your business. A general ledger tracks your transactions for the company. If you’re a small operation, you don’t necessarily have to use QuickBooks. An Excel spreadsheet works just fine. No matter what, you must be keeping accurate and detailed track of your income, expenses, assets, and liabilities.

A profit and loss statement is one of the most important financial statements regarding the health of your business. Another way to think of this document is as your business’ “income statement.” It details your income, gross revenues, gross profit, and total expenses. Along with your balance sheet, your profit and loss (or “p and l”) statement will be one of the key documents lenders will require when determining whether you qualify for funding.

Good books and records also make tax planning much more effective and can allow you to capture more tax deductions. It saves time in the actual tax preparation, which saves you money. In addition to your books and records, your business should absolutely save its tax returns. All combined, these records help to document the separation between yourself and your business. With proper books and records, you can show that you’re not commingling funds and protect yourself in the event of a lawsuit or audit.

Bookkeeping and Funding

Recently, we’ve worked with so many clients on applying for CARES Act funding. And I can’t tell you how many clients didn’t have financials, so they couldn’t secure the funding they needed. With the CARES Act’s Paycheck Protection Program and Economic Injury and Disaster Loans, proper bookkeeping and financials were essential to actually receiving these funds. Beyond just financials, the whole gamut of books and records came into play. CARES Act lenders were looking for things like 2019 tax returns, payroll reports, Schedule Cs, corporate bank statements, copies of checks or voided checks, articles of incorporation, state letters of good standing, and more. As you can see, keeping good books and records positions you to apply for funding faster and with more success since you’re already prepared with the necessary documents.

The Takeaway

In every area of business, maintaining the proper books and records is essential to the success and overall financial health of the business. Holding the required meetings and documenting those meetings is a matter of compliance and protects the integrity of your corporate veil. In addition to tracking the financial healthiness of your business, keeping proper books and records allows you to capture all possible tax deductions, saves you money and time in tax preparation, and allows you to conduct critical tax planning. Finally, thorough and detailed recordkeeping and bookkeeping allows business owners to apply for and actually secure funding.

If you’d like to discuss your business needs with an experienced Senior Advisor, schedule your complimentary Strategy Session today. On the call, you and a Senior Advisor will discuss the best solutions for your business’s profitability, asset protection, and tax planning. You can schedule online or by calling 888.871.8535.