Required Record Keeping
I know the thought of an audit can get some people pretty frazzled – but don’t worry — this is where you will find all of the things you need to keep track of – trust me – this is important to know.
If you don’t keep track of these things – you will be freaking out when the IRS or State decides it is your turn to be audited.
Being Audited by the IRS
Was I terrified?
Well even though I knew I kept track of everything, and I kept great records of my business in Quickbooks and Excel, I was a bit nervous. Why? I don’t know, I suppose because when I worked as a bartender for many years before I owned a bar, I would hear different bosses talk about being audited and they all seemed a bit shaken up. I wonder if they ran their businesses legitimate or did they do things they knew they were not supposed to do, such as buying booze illegally, keeping two sets of books – stuff like that. I know I didn’t ask them – because it was none of my business.
Once I had my own bar, I knew to do everything by the laws and I would be fine. I figure if you do things illegally to save money or whatever, it will only catch up to you eventually. Then you also have to remember whatever you did that you know you should not have done. I don’t know about you, but for me – trying to cheat the system just wasn’t worth all of the hassles that were bound to catch up eventually.
I have heard about bar owners keeping two sets of books. In my opinion keeping two sets of books isn’t worth the worry or the stress that will come sooner or later. Nope not for me – didn’t want the headaches.
My IRS Visit
This was interesting, to say the least – but honestly, it was no big deal. The people at the IRS Office were just doing their jobs. The lady we had was friendly enough. They told me to bring all of my paperwork down to their office – I had boxes and boxes of paperwork — I just packed all of my paperwork in my file cabinets into file boxes.
This was all of the Beer and Alcohol invoices
All bills — cable, water, electric, insurance etc.
All store receipts for everything you had to buy for the business from toilet paper to lemons etc. By the time I packed them all – if I remember correctly, we hauled 6 to 8 file boxes down to the IRS Office. What a pain that was.
After bringing all of that stuff to the IRS, it didn’t end there.
Some time went by, and then a guy from the IRS shows up at my bar He asked all sorts of questions, and I was showing him my record keeping and then he asked if he could copy my personal records onto one of his thumb drives. I told him sure as I wasn’t concerned about him copying my files – I knew I had nothing to hide.
So after he got his copy of my records – that was it. I have to say, it was nice knowing that I did keep such good records. I have to tell you though – I often wonder if either one of those two people even looked at my records at all?
Reasons For An Audit
I asked the lady in the IRS office, that was doing our bar audit — if there was a reason we were being audited, and she said no, however — she did tell me that sometimes Audits happen because of disgruntled employees or they are often done on a new business after about 3 years of being in business. I had been open for 3 years almost to the day of finding out I was being audited. Weird huh?
Oddly enough, I had recently fired two employees for theft.
Needless to say, I came out squeaky clean after all was said and done. The great part is I knew I would because I paid all of my taxes on all of my sales etc. Trust me I am so glad I stayed on the up and up, kept accurate records and didn’t fudge the books etc.
Below you will find the many things that you need to keep track of. This is very important. So many owners don’t realize that not keeping accurate records can really be a serious problem — why? Well — let me tell you — the audit folks ask all kinds of questions. They want to know your waste, how much you personally consumed, when did you raise your prices, do you have happy hour, how much theft etc. The IRS doesn’t mess around and I have heard some State Audits are even worse.
So have all of your purchases, sales and losses accounted for. Keep track of every little thing.
Keep track of every little thing.
All Sales & Purchases
Never throw away a single invoice or receipt – File them all in a safe place.
Waste covers a pretty large area – expired beer, old fruit, outdated bags of chips etc. This area can go on and on.
Loss of Products
Alcohol, Beer, Draft Beer, Wine, Champagne, Juice, Snacks etc.
My bartenders have dropped plenty — one of my bartenders flipped her long hair back, the hair wrapped around the bottle that was behind her on a shelf and down came the bottle. Goldschlager all over the mats, what a horrible sticky mess, not to mention the loss of alcohol.
Two bottles were smacked together while carrying, loss of two bottles. Anyway things like that need to be accounted for, before you forget.
I had cases of bottle beer fall over in my cooler. No thanks to whoever it was that stacked them like the Leaning Tower of Pisa!!! Grrrrrrr Anyway I lost a lot of bottles of beer that day. I hated the mess even more.
In my liquor storage, one of my shelves fell from not being able to hold the weight of all the bottles. I got lucky though, I didn’t lose to many bottles that day. It could have been much worse. Again it is important to track all of this and even take PICS or Videos of the loss of products if you can. You need to account for every single broken bottle.
Comps — Drinks You Give Away
Important information — some States say it is illegal to give away drinks. Now I know most bars comp drinks to customers – for various reasons: Birthdays – great customers – new customers etc. If that is the case then you have to list giveaways somewhere. I guess under waste. But you need a system for the bartenders to write down whatever is given away or spilled or whatever. If they give out a birthday drink, that drink needs to be accounted for. If they knock over a drink or pour out a drink because it has a gnat in it– all of these things need to be kept track of. All of my bartenders started their shifts with a piece of paper that I called the BS Sheet. They also had another sheet – called mistakes – that had every alcohol and every type beer listed. If anything was given out or spilled etc, they were to mark it down.
It is imperative that you write down what you as the owner drink or eat or spill or break or whatever. My hubby liked his beer and an occasional drink. The bartenders knew they were to mark it all down. Everything that is consumed, or spilled must be accounted for. If it is not being rung on the register, it has to be accounted for in your record keeping somewhere.
If you have discounts for your Employees – this has to all be tracked also.
Keeping track of price changes can be a bit tricky but you need to keep track of the dates and the time of day the prices changed.
This can be a hassle, but the IRS asked me for all this info during the audit. I had to spend some time looking up the dates I changed or raised prices. I couldn’t remember the dates and never thought to write down the dates and times I raised prices on drinks or lowered prices etc. I had lots of specials during the week – and had to remember to enter all of them into my computer. I put a key on my registers for specials. It made it easier to keep track of. This – to me – was the harder part as I had to remember what was on special. I would put all those extra types of booze on sale that the liquor companies gave etc. You know the booze that nobody wants unless it’s on special. haha
I always ran a happy hour and the prices went up when the bands came on. Be sure to keep track of all this. Write down the times prices changed etc. I had several keys on my cash register that the bartenders used to change the prices accordingly. All the bartender had to do was press the appropriate key for day prices, evening prices, sports specials, happy hour or band prices. Made life easy for my bartenders and for my keeping track of all the price changes during a single day.
Boring Record Keeping
Believe me, I know how boring it is to have to keep track of all of this stuff — but you won’t regret it. Even if you are never audited, you will know how your business is doing because you did keep track!
I think I have covered pretty much everything.
Basically, the rule is — you must keep excellent records of all that comes in and all that goes out. If it is bought or sold — it needs to be documented. If it is spilled or given away it needs to be accounted for. Everything has to be accounted for – right down to that bottle of mustard you bought or that out of date beer you threw away. Every single thing has to be accounted for. Simple as that. Good luck to you if you are being audited — if you are not — trust me sooner or later you will be. So it is important to keep your records in order for yourself and in case of the dreaded audit!