Record Keeping for Your Business – What You Need & How To Make It Work
Are you either in the process of setting up your business and not sure where to start with records and financial reports, or are already running your business and realised that your current record keeping process isn’t working for you? If you are in either of the above situations this is the article for you.
Record keeping is probably one of the less-exciting, but very necessary parts of business. The enjoyable aspects of setting up your business name, structure, space and team are great to tackle but without an efficient and effective process in place to manage and review your cashflow, profits and losses, salaries, tax obligations and more, you could fall behind very quickly and things could get costly.
We’ll take you through the why, what and how of record keeping which is basically – why it’s important, what it involves and how to make it work efficiently and effectively.
Record Keeping Benefits
You probably already realise the benefits of record keeping to be reading this article about it now. In case there are reasons you haven’t yet thought of we’ve listed them below:
- Helps efficiency within your business
- Assists in forming the basis for managing your cashflow
- Provides timely access to information and records
- Allows you to track business health to make important business decisions
- Tracks key performance measures
- Ensures information is readily available for monthly and annual reporting
Top Three Record Keeping Uses
Annual reporting obligations
- Income Tax Compliance – As a business you need to prepare and lodge annual tax returns to the Australian Taxation Office (ATO). These will contain your income and expenses for each financial year (which is something your accountant/business advisor can assist with).
- Payroll Reporting Requirements – This involves being compliant with the new Single Touch Payroll (STP) requirements. The ATO has introduced an STP reporting requirement for employers where they need to submit payroll information to the ATO on a real time basis (i.e. at the point of finalising each ‘pay-run’).
Monthly and quarterly obligations
- Business Activity Statement (BAS) / Instalment Activity Statement (IAS) – This is the declaration of GST, PAYG Withholding, PAYG Income Tax Instalments etc. on a monthly or quarterly basis as required by the ATO.
- Superannuation – Businesses are required to report and pay employee superannuation amounts within 28 days of the end of the quarter. There are strict guidelines enforced by the ATO so that employees are looked after and paid their superannuation on time and in full.
Internal reporting considerations
- Cash Flow – Up-to-date records provide business owners with a full overview of their current cash position, as well as expenses due to be paid and income expected to be received. This can assist in planning to ensure enough cash is always available to run your business.
- Profit & Loss – The ability to generate a correct, up-to-date Profit & Loss report will allow business owners to identify how much income they’ve earned over a certain period, in addition to providing details of the expenses they’ve incurred in order to earn this income. A Profit & Loss report will help in determining when a business owner can reduce costs and improve their overall business performance.
- Budgeting & Forecasting – Good record keeping through the use of an accounting system can aid in projecting/estimating upcoming income and expenses, expected cash flows and the overall performance of your business.
- Customised Reporting – Ad-hoc reports (eg. sales by customer, aged receivables, aged payables) can provide timely access to important business information. These reports can form the basis of the ongoing decision-making process for business owners. For instance, a ‘sales by customer’ report will assist in working out who the largest customers of a business are – ultimately allowing business owners to better tailor their products or services to them.
Record Keeping Requirements
As you know there are records that you are required to keep, and report on, as the responsible business owner. The ATO is a significant government body that uses these records to ensure that businesses are doing the right thing and meeting their reporting obligations. Fortunately with the introduction of online services, reporting to the ATO is much more efficient and easy. As a business owner you are required to:
- Keep records for a minimum of 5 years
- Make the records easily accessible and in English
- Lodge monthly and annual reports as required by the ATO
If you are a small business owner you can find more information on record keeping here.
Accounting Software Suitable for Your Business
To make your record keeping and reporting as efficient and easy as possible, it’s important to have the right systems in place. Setting up cloud accounting software is a popular step in the right direction as it can be accessed anywhere, allows you to set up automatic bank feeds for better efficiency and accuracy and makes it easier to meet certain reporting obligations.
We’ve listed the most common and trusted accounting software platforms below, along with a brief description of what makes them different and a link to their website so you can work out which type might suit your business best:
- Xero – A more robust and adaptable system but generally costs more than other packages (small-to medium businesses)
- Quickbooks – Is a more basic but cost-effective option (small businesses)
- MYOB – Offers a little more functionality than Quickbooks but is also slightly more expensive (established businesses)
- Reckon – Similar to MYOB (established businesses)
For some industries it’s beneficial to have software specific to your industry and requirements. In this case we recommend you speak to your accountant or business adviser to discuss the options available.
Ongoing Records Management
If you are new to business and don’t have a team of employees on board to help, it may be beneficial to hire a bookkeeper for your record management and to ensure reporting dates are met. Record keeping still takes time and as a business owner you have a host of other tasks that require your attention.
In a general sense, bookkeepers may charge around $40 – $50 an hour. With ongoing technological efficiencies being built into the various cloud accounting software packages, a lot of processing can now be automated. The time it now takes to ‘reconcile’ an accounting file has reduced significantly over the past few years. An hour or two each fortnight may be all it takes to keep your accounting records up-to-date.
Common Mistakes To Avoid
When looking at record keeping, there are usually two common mistakes made by business owners:
- Misreporting – Providing inaccurate information to business stakeholders, such as employees, the ATO and customers/suppliers. Having a strong record keeping function (i.e. using the services of a bookkeeper or taking the time to learn how to use your accounting software) will help minimise the risk of misreporting.
- Late lodgement – The late preparation & lodgement of information for annual, quarterly and monthly obligations is another ever occurring issue in business. Much like misreporting, having a strong record keeping function will assist in keeping up with deadlines and other requirements.
In some instances, there are repercussions for misreporting information or lodging information late. These can come in the form of general interest charges, administration fees, penalties and sometime more severe consequences. It is therefore crucial to ensure your business is engaging in good record keeping practices.
Putting It All Together
Getting control of your records is a great way of getting in tune with your business situation. It allows you to set goals and identify other areas that you would like to focus on.
But there is also no one size fits all approach to any business and that also applies to record keeping. You need to use your knowledge to work out what processes and solutions work best for you and this article is a great place to start.
If you find that you do want to engage a business adviser to go through your options or gain some guidance, make sure they align with your values, they listen to what YOU want to achieve and they offer sound solutions that make sense and that make you feel confident in their ability. We ensure you will find it useful to get in touch with our team for a chat so you can find out if our approach suits your business.
Wishing you and your business every success!