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How to reconstruct your lost business records

Small business owners in the Gulf Coast are facing the enormous task of putting their companies back together. For some, that includes reconstructing lost or ruined business records.
/ Source: The Associated Press

Throughout the Gulf Coast, small business owners are facing the enormous task of putting their companies back together. For some, that includes reconstructing lost or ruined business records.

Owners who didn't have their records backed up at a remote location or who were unable to take their books with them have to pull together as much information as they can. In the short term, they will need the data if they're applying for Small Business Administration disaster loans. In the long term, those records will be needed for tax returns and for any future financing you seek.

If you're faced with reconstructing your records, the first bit of advice you should follow is to get someone else to help you, either an employee or someone you hire to do it. If your entire premises were wiped out, you need to focus on dealing with the insurance company, relocating and/or finding a contractor and keeping in touch with employees, customers and suppliers.

However, if you need an SBA loan in order to rebuild, your books may in fact be your biggest priority.

In reconstructing your data, you should first be sure that you have indeed lost it all. If you still have your PC or server, Robert Pesce, a certified public accountant with Marcum & Kliegman LLP in New York, suggests taking it to someone with expertise in recovering data from damaged hard drives.

"Maybe some information can be retrieved," he said. "Maybe all is not completely lost."

Pesce also suggested asking your accountant for copies of any financial or tax records for your firm. You can also get a copy of your returns, or the information on your returns from the Internal Revenue Service. The agency's Web site,, has instructions.

If you can't recover any data, you'll need to start reconstructing your records bit by bit. It will be difficult and laborious but not an impossible task, Pesce said.

You may not be able to pull every last bit of information together. But you do need to show the people who might want to see your financial information, such as banks and the IRS, that you made a good-faith effort to accurately reconstruct your books.

Forensic accounting
Mark Toolan, a certified public accountant in Exton, Pa., likens the process of reconstructing books to forensic accounting, a process used by investigators in fraud cases to track down a company's records.

Reconstructing your accounts payable is likely to be the easiest task you face, Toolan said. Ask your bank for copies of all your monthly statements and canceled checks, and ask your credit card company for statements. Your suppliers can also let you know what you've paid them; they have invoices and their own bank records.

Payroll is also one of the easier parts of your books to put back together. It is simplest for businesses that outsource their payroll; the information is readily available from the suppliers. For owners whose payroll is done in-house, get copies of your payroll deposits from the government.

The most difficult part of reconstructing your books will be your accounts receivable, since there's no central place like your banking records that indicates who you've done business with. You need to pull together a list of your customers and ask them for copies of the invoices you sent them and/or the checks they sent you.

This process can be further complicated if you've had a falling-out with some of your customers.

"You're almost using the honor system and assuming you have decent relationships with people," Toolan said.

It's stating the obvious to say businesses can avoid this painful process by having their data backed up. There are a variety of ways to back up data, ranging from using CD-ROMs to having a remote server duplicate all the information you store.

CD-ROMs are clearly the cheapest method, but have a major pitfall — if you store them in your office, they can be destroyed along with everything else. And while there is advance notice of hurricanes, many other disasters can strike without warning, so a fire in the middle of the night could cost you all your data.

Pesce noted that ledger software may include backup functions that will duplicate your information on the Internet. And computer networks can be programmed to automatically back up data each night, he said.

You can also have your data backed up by a company that offers offsite data storage. But be sure you choose a company that is far enough away that it's unlikely to be hit by the same disaster that afflicts your business.