Why Is Good Record Keeping Essential?
If you’re operating a business there are many reasons why good record keeping, including source document retention, is essential.
- Tax legislation (administered and enforced by the ATO) contains specific record keeping and substantiation provisions, along with many stringent lodgement and payment deadlines
- For those operating in a company structure, the Corporations Law (administered by ASIC) dictates what financial records companies must maintain
- If you need to apply for finance of any kind, lenders will require up to date financial information in order to assess your borrowing eligibility
- If you are looking to apply for and be awarded tenders, many of those organisations will also want current information to demonstrate viability and stability
- As any good business operator would know, effectively managing your day to day cashflow (i.e. what money’s coming in, & when; what cash is going out & when is it due?) is critical. In the challenging economic times we find ourselves in being on top of you cashflow is more important than ever, but becomes extremely hit and miss, if you don’t have access to ‘real time’ figures
The above list is certainly not exhaustive and merely highlights examples of the more common situations where your financial information is a vital component of your business undertaking.
What Price Might You Pay For Being Complacent?
- Failing to keep adequate records may involve heavy penalties where those records are required by law (a reminder too, that penalties are generally not tax deductible)
- You may overlook a sizeable tax deduction, or have one denied
- Your tender for that all-important contract may be unsuccessful or financing may not be approved simply because you can’t produce the financial information required in a timely manner
- In addition, as a business owner you will not truly have your finger on the pulse in relation to the real financial performance of your business. This may lead to ill-informed decision making
What Constitutes Good Record Keeping?
Our philosophy is simple!
Your records must be:
- complete;
- accurate; and
- relevant
If either of the first two elements are missing, your financial records are unlikely to be relevant. Therefore, business decisions you make (e.g. expanding or contracting operations; hiring or firing) are going to be based on uninformed information, which may result in less than optimal outcomes for you and your business.
What’s The Solution?
In this fast-paced electronic and digital age, there are various software programs (both desktop/server based and Cloud versions) designed for just this purpose.
Even if you’re a micro-business, for example a sole-trader or a contractor, and you have few, if any, employees there are a number of ‘starter’ or ‘basic’ subscriptions available, that are very reasonably priced. Some offer introductory, no obligation, free trial periods allowing you to try the product before you commit to an ongoing subscription.
On the other hand, you may only need payroll capability right now (for example, to comply with Single Touch Payroll (STP) reporting obligations) – Payroll Only plans are available too!
When considering the appropriate software packages, think about who is going to be responsible for data input, reconciliations, reporting etc.
Will it be you, an employee even a contract bookkeeper – or a combination? You need to consider if the person has the appropriate skills to maintain the integrity of your data. If not, what training might be necessary, or what level of assistance and support might they require?
Now You're Off & Running!
The key now is to ensure your data is being updated/entered regularly and all transactions are being captured. This could be daily, weekly, fortnightly, or monthly depending on the size and scale of your business.
Think about what system is in place, or should be in place, to accurately record that urgent invoice you paid out of your personal funds?
Schedule and adhere to the timing of ‘reconciliations. If you lodge your BAS on a quarterly basis, then quarterly data reconciliations prior to BAS finalisation and lodgement should be the minimum standard. Alternatively, if you are required to lodge BAS on a monthly cycle, then monthly reconciliations would be the minimum standard.
Remember the ethos – complete, accurate and relevant!
Paying For Some Extra Peace Of Mind
We understand small business budgets are often extremely tight and perhaps you’re thinking you don’t want to spend yet more money maintaining your financial information. You’ve got the software package that’s right for you, data is being inputted on a regular basis, the figures look ‘kind of right’ – what could go wrong?
Remember, there are a lot of complex income tax and GST rules to consider and under our legislation, the onus is on YOU to get it right.
The old saying goes “ignorance is bliss”. Unfortunately the ATO & other regulatory bodies don’t subscribe to that view!
Not knowing is no defence if you get it wrong!
Now is the time to think about engaging an experienced certified bookkeeper, or a registered Tax or BAS Agent to periodically review your data. Typically, they will look at reconciliations, spot check transactions, investigate unusual amounts and problematic ledger accounts and highlight any concerns requiring further action.
A few dollars spent here may save some potentially costly errors and will help mitigate some of the stress each BAS lodgement cycle.
The Next Headache – Annual Income Tax Returns & Financial Statements
If you’ve followed the process outlined above and maintained your financial records/data progressively and accurately throughout the year, it’s a relatively simple process to give your accountant access to those records.
If those records are complete, accurate AND relevant, your Accountant will love you for it!
You may even save some money on their costs as there’s less work involved and you avoid that time-consuming process of going back and forth answering questions, finding missing documentation.
Running A Business But Not Required To Be Registered For GST?
Perhaps you’ve read this far and think you don’t need to bother with accounting software. After all, your needs are much less complex – you don’t lodge BAS, you don’t employ anyone so there are no payroll reporting obligations to be complied with, how do I benefit?
You may still want to know at the push of a button how your business is performing at any point in time, or your bank manager may require a current Profit & Loss Statement if they’re even going to consider your loan application.
A starter or basic software program will do all this for you.
Alternatively, you may just want to be organised – no more shoe boxes full of receipts for your accountant to sort through, or files you can never quite put your hands on!
Some software suppliers provide good, basic (but useful) ‘cash book’ packages that allow you to record your income and expenditure in an ordered and progressive manner and produce basic reports.
Again, come tax time your Accountant will be most appreciative!
How We Can Help
The friendly Integrity Impressions team are available to help and guide you through the record keeping requirements and process. We have more than 40 years’ experience helping businesses throughout Perth and beyond.
We hold current accreditations across all our service fields – bookkeeping (including payroll), accounting and taxation.
Still not convinced you need a software solution for your business? No problem – we can advise you on and work with manual record systems too!
We pride ourselves on old fashioned, personal service and expert advice at a price you can afford.
We would love to hear from you.
