Tips for keeping records for your small business.
The coming of tax season is surely not something that excites you as a small business owner. On the contrary, getting your taxes in order is, at best, an annoyance and, at worst, the least enjoyable of all the things you do for your company. At its worst, it causes you to rip out your hair in a state of despair and confusion as you try to make sense of it all.
However, tax time doesn’t have to be a miserable experience. You may ease the pain of completing duties linked to taxes and save money with the help of the following recommendations.
if you are not maintaining an up-to-date system for your company’s record-keeping? It’s possible that you’re doing major damage to your company’s future!
Time is one of your most valuable resources when you operate a small business. However, it is simple to become entombed in one’s obligations when one must attend to the needs of consumers, employees, and providers.
Keeping accurate records for your company should be a daily top priority if you want it to continue to be profitable and adaptable.
If the record keeping at your company is kept up to date, you will always be aware of the specifics of your current financial situation. As a consequence of this, you are in a better position to plan ahead and provide an honest picture to other entities when doing so is expected of you.
These entities may include the Australian Taxation Office, Fair Work Australia, The Australian Securities and Investments Commission, and a potential business buyer should the need arise.
You will be in a much better position to create good connections with customers and suppliers because you will be able to conduct business with them in an efficient and professional manner, which means a secure future for your company! In addition to this, you will be in a much better position to establish credibility with potential investors.
Getting your taxes in order is, at best, an annoyance and, at worst, the least enjoyable of all the things you do for your company.
However, if you are not maintaining an up-to-date system, you’re doing major damage to your company’s future!
The account is a record that contains all debit and credit entries of a certain kind in a company’s accounting system.
Examples of accounts include accounts payable and payroll. Many different accounting systems are widespread, and the one you use will depend on the requirements of your business.
Maintaining accurate records will assist protect your company from being audited by the ATO. If you can’t provide evidence to support your claim, you may be required to pay a higher tax rate. The client files are an excellent place to save additional helpful information, such as a customer’s preferences. It is important to keep records of all other costs, travel logs, invoices, and previous tax files. If any clients or staff cause trouble in the future, these records may come in handy.
What is bookkeeping?
Bookkeeping refers to the process of documenting and monitoring all financial activities for your organization, including sales, purchases, and payments. Bookkeepers are responsible for tracking all expenditures and income in order to assist a firm in making educated financial choices.
The purpose of accounting is to provide you with a more comprehensive view of your company’s financial state, ensure that your accounts are in balance, and facilitate more strategic cash flow management.
The basics of bookkeeping
Many owners of businesses choose to retain their financial records in-house in order to save money and maintain direct control over their companies’ financial standing. You’ll be able to keep your money organized and handle difficulties when they emerge if you do it the right way and do it on a regular basis.
There are five primary categories of accounts, which are as follows:
- Assets. A firm may acquire resources or objects of value as a result of the transactions that it engages in (e.g., inventory, accounts receivable).
- Liabilities. Obligations and debts due by a corporation to its suppliers, banks, lenders, or other companies that supply goods and services to the firm (e.g., loans, accounts payable).
- Earnings or money received. Profit made by the firm either via the sale of goods or the provision of a service.
- Expenses. The amount of cash that leaves a firm so it can make payments for either its assets or its services (e.g., utilities, salaries).
- Equity., When all of a company’s obligations have been deducted, what’s left over is the worth of an owner’s stake in the organization (e.g., stock, retained earnings).
Setting up each account in order to be able to record transactions in the correct category is the first step in performing accounting for a small business.
This is the information that goes into your general ledger. Many different accounting systems are widespread, and the one you use will depend on the requirements of your business.
However, it is probable that your bookkeeping procedures will not be identical to those of another online retailer.
Why should you keep records?
Keeping detailed records may be beneficial in many different ways. You might find it useful to:
- Keep an eye on the financial standing of your company so that you can make sound judgments regarding it.
- abide by the rules regarding your taxes and superannuation.
- Control the flow of your cash.
- Providing evidence of your financial health to financial institutions or other lenders.
This is the primary challenge that the overwhelming majority of people who run small businesses are forced to confront.
It is likely that the sheer quantity of distinct papers, such as invoices, receipts, and other ins and outs data, that you get or send out on a daily basis can be highly daunting for you.
There are some that are not as easy to keep up with as others, but there are others that seem to be a no-brainer to do so.
The problem is that some of the documents, even while at first look they might not seem to be that relevant, could end up being essential in the event that the ATO comes knocking. The following is a list of samples of the many kinds of records that you definitely ought to take into consideration keeping:
The client file is valuable for more than just tax time.
It is quite helpful to have the ability to instantly view bills that have been issued to a customer as well as any expenses that have been spent as a result of accomplishing the assignment. It has the potential to cut down on the amount of time you spend on projects and help steer any future endeavours that include your customers.
In addition, client files are a good area to preserve additional valuable information, such as a customer’s preferences for any future projects, which may be found in the files.
Contracts are an essential component of every small business.
They not only outline the obligations of both your business and the consumer, but they also make it simpler to file a lawsuit against the latter in the event that they fail to fulfil their end of the bargain.
Therefore, be sure that these are documented so that your business can prevent any future problems brought on by difficult clients.
You must keep track of everything that your company spends money on, and the receipts are the best way to do this.
When it comes time to file your taxes, these receipts are going to be valuable and will assist enhance your tax return.
In addition, you have a receipt as evidence of purchase, which is necessary for product warranties and exchanges in the event that something goes wrong with the item.
Any communication that takes place within the company or with customers needs to be documented. It is possible that these records will come in handy in the future if any customers or employees cause any trouble. Even though keeping these records won’t help you get the most out of your tax returns, having them on hand could be beneficial in the event that you end up being sued and the judge orders you to provide them.
Any communication that takes place within the company or with customers has to be documented.
In the event that any clients or employees in the company cause any issues in the future, it is likely that these records will prove to be useful.
Keeping these records may come in helpful if you ever find yourself embroiled in a legal battle and need to defend yourself, even if doing so will not help you get the most out of your tax returns.
Tax and accounting records
It is essential to maintain accurate records of all other charges, trip logs, invoices, and prior tax files. When it comes time to file your taxes, you will find that having all of this information on hand will be helpful in assessing the deductions, returns, and tax credits to which you are entitled.
How to keep your books
Maintain and update financial records
It is critical to the success of your company that you maintain records that are correct and up to date. If you keep good records, you may reduce your losses, better manage your cash flow, satisfy the needs of any legal, regulatory, or taxation body, and increase your ability to analyze your finances.
Your accountant will be able to assist you in organizing your record-keeping method.
Bookkeeping entails dealing with numbers. The majority of the job consists of simple mathematical and accounting tasks.
The specifics are determined by the kind of company you run, but it could involve things like settling accounts receivable and bank statements, recording financial activities, issuing invoices and bills, and keeping track of wages.
- You will also handle other concerns pertaining to finances, such as tax bookkeeping for payroll, income, employment, and even small company tax deductions. This responsibility falls under the category of “financial matters.”
- Planning of the company’s budget to assist in maintaining progress and expanding the business.
- Getting ready to provide financial information to stakeholders, including balance sheets, income statements, cash flow, and changes in equity.
Keeping accurate books needs thoughtful analysis and a basic understanding of legal requirements. In addition, in the event that an audit of your company is ever conducted, you want to ensure that your records are in good order and that any deductions you take are appropriate.
Keep track of what everyone is doing (and spending)
The process of keeping accurate financial records can consume a significant amount of time. You are responsible for ensuring the correctness of each financial transaction, balancing the accounts daily, and keeping track of payments received and paid out to staff.
This indicates that you need to have strong communication and organization abilities to become proficient in bookkeeping and accounting.
It is possible that on any given day, you will be required to handle travel expenses, gather receipts from employees, or pay individuals back for charges incurred.
Establishing a system for the reporting of claims and the payment of expenses helps ensure that no transaction is overlooked and that records are kept current and correct.
Use bookkeeping services to improve processes
Your toolkit of accounting resources for your small business has to include a reliable bookkeeping or accounting program. In addition, the proliferation of virtual accounting and other forms of online bookkeeping services underscores the importance for owners of small businesses to be current with developments in information technology.
Data entry can be streamlined, thorough financial reports can be created, data can be consolidated, and record-keeping can be automated if you have access to competent accounting services or software. It is also a simple method for enhancing accuracy throughout your company and removing the need to spend time performing operations that are repetitive.
How might record keeping be made simpler?
Keep your receipts digital
In order to attach the receipt, you can choose to snap your own photo of it or to make use of an image that is already in your library.
You are not required to keep the paper copies of your original receipts if you have kept electronic copies of those receipts and those electronic copies are an accurate and clear replica of the original. If you have preserved electronic copies of those receipts, you are exempt from this obligation.
You have the option to either take a photo of your receipt or upload one when using the myDeductions feature.
Get those receipts out of the shoebox that’s been sitting on top of your cabinet and scan them onto your computer. The ATO does not have any issues whatsoever with digital receipts, provided that they are accurate duplicates of the paper receipt.
The utilisation of electronic documents is associated with a great many glaring advantages as well. You can rapidly generate invoices, summaries, and reports for GST and income tax purposes only by looking through a digital file. These documents can be used for either purpose.
This is a tremendously helpful feature. If you have an approach to naming your files that is straightforward and structured, using the search function, which comes preinstalled on all computers, will make it a great deal less difficult for you to identify the goods you’re looking for.
Last but not least, cloud storage ensures that even in the event of a catastrophic catastrophe such as a fire or theft, you will not lose any of your vital information because all of your data are stored on safe servers that are located all over the world.
Make a file strategy
If you take the time to create a file plan in advance, saving documents and gaining access to them in the future will be a lot less difficult for you to perform.
On the other hand, despite the fact that it could appear to be the most tedious thing in the world (filing! Who wants to do that? ), it might actually have a significant impact on the way records are kept in your firm.
You should also make sure that you have an efficient naming system, as this will be of aid to you in the future when you are searching through the material that you have.
Separate your personal costs from your business expenses
Although it may appear to be obvious, there is still a significant risk involved. You will be tempted to make personal purchases using your company’s credit card rather frequently, but you have to fight off that urge.
This is a poor practice to engage in, but it also causes a significant amount of hassle when it comes time to pay taxes.
You must now sift through all of your personal spendings as well, separating them from your company expenses as you go.
In addition, this will make it more difficult for you to keep accurate records as you sort through your expenditures and differentiate between the company and personal costs.
Maintain a clear separation between the money you spend on your personal life and the money you spend on your business.
Create a fresh document every year
A straightforward tactic that could help you save a substantial amount of time and make it much simpler to navigate your information is to start a new file at the beginning of each new year. At the beginning of each new year, make a new file and save all of your records that belong to that year in that new file. Do this for each new year.
Additionally, it will make it much simpler for you to delete documents that you do not need to keep for any reason, such as when the mandatory retention period of five years has gone.
Make use of accounting software
Excel spreadsheets are a huge improvement over record-keeping with pen and paper, but you haven’t seen anything yet compared to sophisticated accounting software. Excel spreadsheets are a significant advance over record-keeping with pen and paper. Because of these tools, you may easily automate certain aspects of your record-keeping activities, which will cause the process as a whole to move along more rapidly.
To be able to give ready-made reports that cover everything from automatically calculating expenditures and income to presenting the information, you won’t have to muck around with the equations in Excel, which means you won’t have to worry about doing so.
One of the potential negatives of utilising this kind of software is the possibility that it may be too difficult to utilise right out of the box. If you find that you are in need of assistance, you should think about getting the services of an accountant. They are skilled in accounting software like as Xero and can help you obtain a grasp of how to make use of it by assisting you in gaining that understanding.
Record keeping tips for small business owners
Invoices, receipts, cheques, working papers, and any other documents required to explain the processes by which a company’s financial reports are prepared are considered to be “financial records” according to the definition provided by the Australian Securities and Investments Commission (ASIC), which is responsible for regulating the securities and investment industry in Australia.
The Australian Securities and Investments Commission (ASIC) requires businesses to preserve the aforementioned financial records for a period of seven years1, which can be easier said than done if your company does not have the systems and processes in place to organize and manage your information.
Five steps tips you need to know for records management compliance
Know what records you have to keep
The owners of businesses are responsible for keeping a wide variety of records, including but not limited to financial records, legal records, personnel records, policy and procedure documents, and so on. Therefore, be certain that you are only retaining the things that are absolutely necessary and that you are discarding everything else.
Understand the lifecycle of records
Every record has its own unique lifetime, which might be as short as a few days or as long as it is permanent. The length of time that a record needs to be kept in order to fulfill legal, administrative, monetary, or historical obligations is what determines the records’ lifetime. A record needs to be adequately managed and regulated over the entirety of its existence, which includes the entire duration of this procedure.
The term “records lifecycle” refers to the progression of stages that every record must go through in order to be properly handled throughout its existence. The generation or receiving of records, distribution and use, and finally disposal are the three primary processes that comprise the lifetime of records. At each stage, there are different policies and processes in place.
During the course of an organization’s operations, each document will normally pass through the following stages: creation, access, categorization, change, archiving, backup, and destruction. Understanding this life cycle will make it easier for you to develop corporate procedures and policies for records management that follow best practices.
Use free government services
There are a variety of government entities, like the Australian Taxation Office (ATO) and the Department of Industry, Innovation and Science, that provide small company owners with access to free online resources to assist with records management compliance. For example, the record-keeping assessment tool provided by the ATO is an excellent place to get started.
Keep track of your procedures
Take some notes on the processes you employ while organizing your records. This can help codify your procedures, which is crucial because you may need to delegate record-keeping to a third party as your company expands. This may be accomplished by following the steps outlined in this article.
Seek an information management professional
When it comes to managing their companies’ records, proprietors of small businesses do not need to do it alone. Instead, find a specialist in information management who can work with you as a partner to alleviate the stress associated with records management.
Embrace digital for records management
A growing number of companies are doing rid of their file cabinets and manila folders in favor of solutions that enable them to store, access, and manage digital versions of their information.
It is permissible for companies to preserve their records digitally provided that they meet the following criteria: they must be an accurate and unambiguous duplicate of the original; they must be maintained for a period of five years; and they must be open to inspection by the ATO at any time.
The records must also be stored on a computer or other device that meets the following requirements: you must have access to it (including all passwords); it must have a backup in case the computer fails; and it must let you to manage the information that is processed, input, and delivered.
How long should your records be kept?
At a minimum, you should save your tax records for a period of five years. The ATO has said that you must do this, in addition to the fact that it is beneficial to your company. This indicates that any possible disagreements with customers over earlier work might be settled with the use of these documents. In addition, such records may be utilized by your company for the purpose of future planning, which can assist in the production of a data-supported prediction of your company’s future.
Keep records pertaining to taxes for five years after they have been created, received, or the transaction has been finalized, whichever comes first.
- Maintain your financial records for a period of seven years. Documentation for financial accounts, for instance; such materials would be required in the event that the company is put up for sale or subjected to an audit.
- Maintain employment records for a period of seven years. Payslips, hours worked, employment status, superannuation payments, and leave balances must be kept to remain in compliance with the Fair Work rules.
- Purchase and lease agreements, brokerage statements, and other sales documentation should be kept for a period of seven years following the disposal of a company property or stock.
- Other records, including but not limited to those pertaining to
- Receipts for major purchases include the following: In the event that you may require evidence of purchase in the future, you should save these with the paperwork pertaining to your insurance. Consider the following scenario: the item sustains damage, and you need to file a claim with your insurance company.
- documents pertaining to real estate and investments: If you remodeled your business premises, you should save all of the receipts and documents of the improvements and related costs you incurred since it may have an effect on your capital gains tax.
How to master small business bookkeeping
One of the most important aspects of managing the finances of a small business is becoming familiar with and keeping track of your financial data. Because of this, if you manage a company, you will either need to take lessons in bookkeeping or find someone else to handle this responsibility for you.
The good news is that not only is it easy to learn how to handle your books, but there are also a few noticeable benefits to taking on the responsibility yourself.
Even if you are unfamiliar with keeping track of your accounts and do not have the financial means to pay a bookkeeping business or a self-employed bookkeeper, you may still educate yourself on the fundamentals and handle things on your own. This article will focus primarily on bookkeeping for online businesses and will examine it on a daily, monthly, quarterly, and annual basis.
Keeping accurate books needs thoughtful analysis and a basic understanding of legal requirements.
Establishing a system for the reporting of claims and the payment of expenses helps ensure that no transaction is overlooked and that records are kept current and correct.
The proliferation of virtual accounting underscores the importance for owners of small businesses to be current with developments in information technology. Maintain a clear separation between your money on your personal life and business.
Create a new file at the beginning of each year and save all of your records pertaining to that year in that file.
Use Excel spreadsheets and accounting software to automate parts of your record-keeping tasks quickly.
Owners of small businesses are responsible for keeping a wide variety of records, including but not limited to financial records. The Australian Securities and Investments Commission (ASIC) requires businesses to preserve financial records for a period of seven years.
This can be easier said than done if your company does not have the systems in place to organize and manage your information. A growing number of companies are doing rid of their file cabinets and manila folders in favour of digital versions of their information.
It is permissible for companies to preserve their records digitally provided they meet the following criteria: they must be an accurate and unambiguous duplicate of the original and must be maintained for a period of five years.
If you remodelled your business premises, you should save all of the receipts and documents of the improvements and related costs. Even if you do not have the financial means to pay a bookkeeping business, you may still educate yourself on the fundamentals and handle things on your own.
Are you having trouble staying on top of your bookkeeping? We are standing by to lend a hand. Bookkept is a team of highly trained accountants and business advisers that can fulfill all of your requirements in terms of accounting and business consulting services. As a result, you will be free to focus on what you do best: operating your company.
For a consultation, please get in touch with us as soon as possible at [email protected] or (03) 8568 3606.