One of the more challenging aspects of running a business is the need to maintain accurate and up-to-date financial records.
Some small businesses still use a manual, paper-based process but these days it is more common to use technology such as cloud-based software packages. They do make life a lot easier so it’s worth getting in touch with your local accountant for guidance about which package will best suit your business, and to get some initial training.
Good bookkeeping practices are essential to run an effective and efficient business and many businesses fail due to poor record keeping, cash flow problems and financial mismanagement.
Here are some more tips to help:
1 – Ensure your business and personal finances are kept separate. This is crucial and will save lots of time and energy in the long run.
2 – Comply with tax obligations. In Australia for example, all businesses must have an ABN and receipts are required for purchases so you can claim your expenses. If your turnover is more than $75,000 you will need to register for GST and complete monthly or quarterly Business Activity Statements. You can register if your turnover is less than this amount, but it adds extra complexity. If you have employees, you will need to register for PAYG Withholding Tax and make sure you pay superannuation.
3 – Records must be kept for a minimum of five years. Your business can be audited by the Australian Tax Office at any time, and you will be expected to promptly supply these records.
- Your Invoices and receipts for sales made by your business
- Invoices received for goods, services and other business acquisitions purchased for your business
- All financial statements including balance sheets and profit and loss statements
- Tax Return information
- Bank Accounts and Credit Card information
- Records of payments made to employees including Superannuation and PAYG tax
These days, you can keep digital files on your computer, but even a well organised paper filing system will suffice.
4 – Maintaining cash flow is critical so you can pay your bills and continue trading as a going concern. Invoice promptly and follow up all overdue accounts. Keep track of all cash payments and make sure any cash you receive is deposited into the business bank account before spending.
5 – Stay up to date with your books. Procrastinating will only cause grief, heartache and frustration further down the track. Perform regular bank reconciliations to identify and correct any mistakes or omissions.
6 – Keep a backup of all documents that have details of your day-to-day transactions, bank statements, receipts, and financial statements.
While it may seem arduous, maintaining accurate book-keeping records is critical to determine the health of your business and to identify if you are turning a profit or making a loss.
If you struggle to stay on top of your financial responsibilities, consider outsourcing. While a Bookkeeper can process the day-to-day financial records, an accountant can help you analyse the operational costs of your business, minimise taxation and provide strategic advice to help your business grow.