Bookkeeping For Small Business in Australia
When you opened the doors of your small business, you were probably excited to meet your first customers and start turning a profit. In contrast, you might have felt less enthusiastic about learning to bookkeeping, especially if you’ve never thought of yourself as a “math person.”
Bookkeeping lets you know how your small business is doing, and it helps keep you onside with the tax office. So what does it involve and how do you make it less boring? We break down bookkeeping for beginners.
But to run a small business, you have to be at least a little skilled in the art of bookkeeping. The thought might be overwhelming if you’re more passionate about, say, selling used books or offering excellent life-coaching advice than you are about numbers—but a basic understanding of bookkeeping can revolutionise your business. Bookkeeping is the process of recording and organising a business’s financial transactions.
With the right bookkeeping tools, you’ll feel more confident in your business’s future and better able to understand (and plan for) your profitability. Best of all, you don’t need to become an overnight calculus expert to understand bookkeeping. Instead, keep reading—the tips we list below can help you get a handle on bookkeeping basics that will help your small business succeed.
Running a business can be unpredictable, but a good record-keeping system can make things easier. On this page, you’ll learn about record keeping – what you need to keep, how to keep records and how long to keep them for.
What Is Bookkeeping?
Before we dive in, let’s define what bookkeeping is.
Bookkeeping is the process of recording and organising a business’s financial transactions, and a bookkeeper is a person responsible for that process. Bookkeeping is the primary way business owners can figure out if their business is profitable: keeping an eye on your numbers lets you identify financial challenges early on and address them before they blossom into full-fledged crisis. Bookkeeping also helps you identify areas of profit expansion—areas you might not have noticed without clear financial reports you can interpret easily.
In general, a bookkeeper records transactions sends invoices, makes payments, manages accounts, and prepares financial statements. Bookkeeping and accounting are similar, but bookkeeping lays the basis for the accounting process—accounting focuses more on analysing the data that bookkeeping merely collects.
Bookkeeping involves recording and classifying all the financial transactions in your business. It’s keeping track of what your business spends and what your business receives.
These tasks used to be managed using books and ledgers, hence the name ‘bookkeeping’. Originally the transactions would be recorded in daybooks, cashbooks, or journals and then transferred to a ledger.
Bookkeeping software has now pretty much replaced the need for physical books.
Accounts Consultant provides end to end small business bookkeeping for Australian clients. Over the years, we have successfully catered bookkeeping services to businesses of all sizes from small scale to multinationals.
Accounts Consultant will handle your books of accounts with utmost secrecy and care. Also, we promise that you will feel proud to work with us as our team of Bookkeepers will work with you in such a seamless way that you will feel like you are working with your in-house team. Why do small businesses need bookkeeping?
An accurate, well-kept set of books is a great start to running a successful business. Here’s why:
- You can check that you’re making more money than you’re spending.
- You’ll have reliable financial information for planning and budgeting decisions.
- You can see if a cash crunch is coming and take steps to avoid it, by watching when you need to pay suppliers, and when you can expect payment from customers.
- You’re more likely to find incorrect payments (or even fraud) that might cost you money.
- You can complete accurate tax returns.
- Having your financial information organised makes it easier for you to work with other parties such as lenders, investors, and accountants.
How To Keep Records?
You can keep records electronically or in paper form. The ATO recommends that businesses use electronic record-keeping if possible, as they are progressively moving towards electronic reporting for tax and super obligations. Keeping your records electronically should make some tasks easier and save you time once you have your system set up.
You’ve created your set of financial accounts and picked a bookkeeping system—now it’s time to record what’s happening with your money.
Each debit and credit transaction must be recorded correctly and in the right account. Otherwise, your account balances won’t match, and you won’t be able to close your books.
Single-touch payroll is a requirement for any business with employees. If you have staff, you need a modern payroll software to give you compliance and ease of the process. If you’ve set-up as a company, chances you’ll be paying yourself as an employee and need a payroll system.
QuickBooks has partnered with KeyPay to bundle payroll as part of their Australian QuickBooks Online solutions. Ironically so too has Sage with Sage Business Cloud Financials. KeyPay as an embedded “best-of-breed” probably wins on this front.
Xero’s payroll is not its absolute strength. Still, it is more than decent and is definitely getting better and is light years ahead of the payroll dished up in MYOB (Essentials particularly).
If you keep your records electronically, there’s no need to also keep paper copies unless a particular law or regulation requires a paper copy.
You can also store and keep paper records electronically. The ATO accepts images of business paper records saved on an electronic storage medium, provided the electronic copies are a true and clear reproduction of the original paper records and meet their record-keeping requirements. Once you have saved an image of your original paper records, you don’t have to keep the paper versions.
Whichever you choose, make sure you store your records in a secure place. Back up your records and, if possible, have a secure off-site storage location, which may include cloud storage.
The records must also be on a computer or device that:
- you have access to (including all passwords)
- is backed up in case of computer failure
- allows you to control the information that is processed, entered and sent
Decide On A Bookkeeping Method.
Suppose you plan to do your books in the house instead of outsourcing to an accounting or bookkeeping firm. In that case, you need to make one crucial choice before you start setting everything up: Are you going to use single-entry bookkeeping or double-entry bookkeeping?
With single-entry bookkeeping, you enter each transaction only once. If a customer pays you a sum, you enter that sum in your asset column only. Makes sense, right? This method can work if your business is simple—as in, very, very simple. If you work out of your home, don’t have any equipment or inventory to offer, and don’t venture too frequently into the realm of cash transactions, you might consider single-entry bookkeeping.
However, most bookkeeping is done using the double-entry accounting system, which is sort of like Newton’s Third Law of Motion, but for finances. Newton’s law holds that “for every action (in nature), there is an equal and opposite reaction.” Likewise, in double-entry accounting, any transaction in one account requires an equal and opposite entry in another account. It isn’t physics, double-entry bookkeeping is more challenging than single-entry bookkeeping, but don’t let the difficulty deter you. Double-entry ensures your books are always balanced, which means you’ll be tipped off immediately if profits start dipping. Plus, most accounting software starts you off with double-entry bookkeeping anyway. With the software all ready to go, you can tackle double-entry bookkeeping with no sweat.
But for managing a business, it’s just as important.
Manual bookkeeping systems use a series of books or ledger accounts. You can often get these from your local newsagent, office supply or book store.
The advantages of a manual system can include:
- cheaper to set up
- less likely that data will become corrupted
- a simpler system to use if you’re not familiar with accounting software
- duplicate copies of the same records are usually avoided
The ATO is moving towards all electronic records. So, now may be a good time to go electronic. Some advantages of digital record keeping include:
- less physical storage space than a manual system
- automatically calculates amounts
- easy to generate reports
- easy to back up and keep safe in case of fire or theft
Your electronic options include accounting software, web-based systems and spreadsheets.
Off-the-shelf or tailored software accounting packages help you to:
- record your transactions
- calculate goods and services tax (GST)
- update ledgers
- prepare financial statements
- generate invoices
Check what software your accountant or business advisor recommends. Make sure software complies with Standard Business Reporting (SBR).
A web-based or ‘cloud’ system:
- lets you update your books from any location
- provides automatic off-site storage for your financial records
- can be a cheaper digital option
However, it does have security risks.
Are you confident using a computer, but don’t have the funds for an accounting package? Consider setting up a series of spreadsheets for your accounts.
Point-of-sale (POS) systems
As your business grows, you may find you need to update or upgrade to a POS system. These are computer systems that help you process sales and can support record keeping.
Depending on the system you choose, POS systems can automatically:
- adjust sales income and inventory records
- create receipts, invoices and tax invoices
- process EFTPOS and credit and debit card sales
Think about the features your business needs before buying a POS system.
How To Do Bookkeeping
The two most important tasks inaccurate small business bookkeeping are recording and reconciliation. Let’s break them down.
Recording every transaction
Record your sales. This was traditionally done by writing them into a cashbook or punching them into a spreadsheet. Business owners are now more likely to download sales data directly into their books from point-of-sale or invoicing software.
Record your transactions. Every business-related purchase needs to be noted. You should also hold onto the proof of purchase if you plan to claim that expense as a tax deduction. Again, you can write these details into a book or spreadsheet. Or you can automate the task so all the debits from your business bank account stream into your bookkeeping software.
You can record income and expenses at different times, depending on whether you do cash or accrual accounting.
Reconciling every transaction
Reconciliation involves regularly cross-referencing your business books against your bank statements to check that the transactions and balances match – and identifying the reasons if they don’t. Often bank fees, interest payments, deposits, and payments that haven’t yet hit your bank accounts will need to be accounted for.
You might do bank reconciliation daily, weekly, monthly, or less often, depending on the number of transactions going through your business. However, you will probably be required to reconcile your books before submitting tax returns at the very least.
The sooner you reconcile transactions, and the sooner errors can be found and corrected. It’s better to do it often – even daily – so the work doesn’t pile up. You can learn more in our guide on how to do bank reconciliation.
Other small business bookkeeping duties
If you’re acting as a bookkeeper for a small business, you may also be responsible for:
- accounts receivable (issuing invoices and making sure they’re paid)
- accounts payable (paying bills on time)
- payroll (paying employees)
Professional bookkeepers also provide other services, like helping with financial reports (profit-and-loss, balance sheet, cash flow report), and measuring business performance. Bookkeepers are also often BAS agents and can help file your taxes.
Choosing A Professional To Do Your Accounts
The right accountant or bookkeeper can help you maximise your business income. They can also help with your books and the financial health of your business.
The financial professionals to consider using include:
- Accountants – can help with your business’ financial needs, including preparing financial statements, managing your tax and providing financial and business advice.
- Bookkeeper – can keep track of your day-to-day financial transactions, look after your banking, chase overdue payments, pay wages and prepare some financial statements.
- Business activity statement (BAS) agent – can help you prepare and lodge your BAS to make sure you get it right. They’re registered professionals who are specialists in their field.
Even if you have a professional to look after your books or accounts, you’re still responsible for any financial decisions.
Check their registrations
Whoever you choose to help with your accounts needs to have the right qualifications for the job. They should also be a member of an accounting or bookkeeping professional body.
The Tax Practitioners Board (TPB) website can check if your tax agents, BAS agents or tax (financial) advisers are registered.
There are two ways you can check:
- Search the TPB register.
- Look for the registered tax practitioner symbol on their website, stationery, brochures or business cards. The registered tax practitioner symbol includes the type of registration and their individual registration number.