Business Record Keeping – The Lifeline Of Your Business!

https://cranbourneaccountant.com.au/services/bookkeeping-bas/Are you self-employed? Do you have a business that you run out of your home? If so, you need to know the importance of good record keeping. Unfortunately, many people think that bookkeeping is only necessary for large businesses with many employees.

However, this could not be further from the truth! Good record-keeping is essential for any business, no matter how big or small. Keep reading to learn more about the importance of record-keeping and some tips on getting started.

Keeping accurate and up-to-date business records is essential for the success of any company. It can be difficult to make informed business decisions, track growth or expenses, and much more without good records. In this post, we will discuss the importance of record-keeping and offer some tips on getting started.

It doesn't matter if you're starting or you've been in business for years – record-keeping is essential to the success of your venture. Without accurate and up-to-date records, it can be difficult to make informed decisions about your company's future.

This guide will teach you the basics of record-keeping, including why it's important, what information to track, and how to organise your records.

Let's get started!

Why Is It Necessary To Have An Accountant Or A Bookkeeper For My Australian Company?

Bookkeeping and accounting are of critical significance to every company, irrespective of their size, for a number of reasons, the most essential of which are the following:

• Compliance
• Performance management

Compliance: Every company must comply with the ATO's stringent reporting and record-keeping standards in order to avoid penalties. The revenue, costs, and expenses that are reported for your firm during a certain time period are used to calculate the amount of company tax, GST, and income tax that you are required to pay.

Your accountant will assist you in the creation of the financial reports that serve as the foundation for your tax computations; however, in order to do so, they will require access to your most recent financial records. If your financial records have been maintained up to date along with the supporting documents, such as invoices, receipts, and bills, tax time won't be nearly as stressful for you, and you won't have to hurry at the last minute to get everything together. In situations like these, having a reliable system for bookkeeping already in place is of tremendous value.

If your company satisfies the requirements to lodge financial reports, then you will also need an accountant to assist you in meeting the compliance requirements set down by ASIC. This is the case even if your company does not meet the requirements to post financial reports.

Performance management: Maintaining a close eye on both the performance of your company and its overall health is equally as vital as meeting regulatory requirements. This involves having an awareness of whether or not your company is profitable (i.e., "is your firm producing money?") and having a solid grasp on your current financial position (i.e., "what are your cash and debt balances?").

It is nearly hard to tell if your company is doing well or if it is on the verge of failing if you do not have a dependable method of bookkeeping that allows you to retain records in a timely manner. Your company will have an advantage when it comes to predicting and planning for issues such as cash flow shortages if it keeps records that are accurate and up to date. Having these data also makes it easier to forecast future performance.

Typically, your accountant will prepare a Statement of Profit and Loss, Balance Sheet, and Statement of Cashflows for your company. These financial documents are required by law. A qualified accountant can assist you with the interpretation of your financial information, as well as the management of your cash flows and projections.

How to Maintain Accurate Records for Your Company

Not just during tax season, but also for the longer term in case of an audit and compliance, one of the most important obligations of a business owner is to keep accurate records and to make sure that your files and paperwork are all brought up to date.

You will be able to keep track of how well your company is doing when you keep detailed records, which will free you from anxiety when the end of the fiscal year draws near. Even though it's quite straightforward, we get a lot of calls and emails from business owners who are concerned that their records are missing important information.

Record-keeping is just one of the many responsibilities that come with running a business; we understand that you have a lot on your plate and want to make things as simple as possible for you.

1. If your company's record-keeping is not current AND complete, you can discover that:

• Either pays a higher amount of tax than it should or pays an insufficient amount, resulting in significant bills farther down the road.
• Does not comply with the regulations of the ATO (or any other regulating agency) and runs the danger of being audited.
• It does not have the level of financial stability that is required to support continuous growth or longevity.
• To put things right could either need a day of your time or many thousands of dollars in fees each year.

2. To maintain your company healthy and adaptable, making good use of business records should be a daily responsibility

If you keep your business record keeping up to date, you will always be aware of your precise financial condition. As a result, you will be able to better plan and present a genuine picture to external entities when required to do so. 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.

In addition to this, because you will be able to conduct business with your providers and customers in an effective and professional manner, you will be in a better position to cultivate solid connections with both parties, which will ensure a secure future for your company.

Keeping Documentation Properly for Your Business

The Corporations Act 2001 (Cth) (the Act) requires all companies to keep written financial records that record and explain their transactions, financial situation, and performance accurately. This obligation applies to all corporations. These records have to be able to facilitate the creation of honest and accurate financial accounts as well as their auditing.

The Act views the maintenance of accurate records as such an important responsibility that it enumerates it as one of the primary duties that must be fulfilled by directors and company secretaries. Infractions of this requirement are taken very seriously by the Australian Securities and Investments Commission (ASIC).

What Records Must You Maintain?

First, we'll go over the what, and then we'll discuss how we arrived at that conclusion. The following is a rundown of the essential aspects of your company that require your undivided attention:

• Your company's files and records. This includes income, expenses, bank statements, information on GST, and any other expenses incurred for a period of five years; however, some documents will need to be kept for a longer period of time. Be aware that the information you preserve needs to be sufficiently precise in order to accurately calculate and substantiate any amounts claimed on tax returns.
• Details on cash transactions, as well as those conducted online and using EFTPOS. Additionally, it is required that this information be stored for at least five years.
• Information that is valid for the GST purchase.
• Information regarding private purchases. This information is useful for determining when you have spent business funds that are eligible to be claimed when you file your taxes. If you have a business card that you use for personal purchases, for instance, you should highlight the transactions and keep a record of them.

1. Income Tax and GST

Recording each of the tax-related things listed below is necessary in order to compile reliable reports and supporting documentation for both your periodic BAS and your annual small company tax return.

• receipts of money spent on purchases
• invoices for purchases and expenses, including any necessary tax invoices
• receipts for purchases and expenditures, including an Australian Business Number
• documents such as cancelled checks and bank statements
• receipts from the use of credit cards
• documentation demonstrating how you worked out any private usage of a product that you purchased
• records for filing income taxes at the end of the year, including a profit and loss statement
• expenses relating to motor vehicles
• listings of both debtors and creditors
• stocktake sheets
• schedules for calculating depreciation
• capital gains tax records

2. Funds you gave to your workers

• declarations of one's tax filing number as well as ones regarding withholdings
• preventing the release of variation notices
• records of worker compensation payments
• pay as you go (PAYG) payment summaries
• annual accounts
• employer superannuation contributions records
• documentation of any ancillary services or benefits you rendered

3. Your company payments are subject to PAYG withholding

• records of sums that were withheld from payments where an ABN was not quoted by the payer
• a copy of any voluntary PAYG withholding agreements, if there are any.
• records of payments made in accordance with voluntary agreements
• each and every PAYG payment summary, including each and every PAYG payment summary for employment termination payments
• all PAYG yearly reports

4. Fuel tax credits:

• fuel you acquired
• permissible and ineligible fuel use
• claim calculations
• any gasoline that was lost, sold, or otherwise disposed of by you

There may be additional information that you are required to record for the sake of compliance and record-keeping, but this will vary depending on the industry that you work in.

Additional Requirements and Suggestions Regarding the Keeping of Business Records

• You should keep all of your records in an electronic format (PDF or any similar format), which will allow you to print a copy whenever it is necessary.

- Ensure that electronic copies are clear and legible.

- Store these securely and regularly back them up.

• Every record ought to be written in English.
• If you no longer require paper records for your archives, you should invest in a shredder so that you can destroy the documents. If you have a significant quantity, you may consider hiring a lockable bin from a shredder provider so that the destruction can take place offsite in a secure manner.

What Exactly Do We Mean When We Talk About Financial Records?

The following are included in the definition of financial records provided by the Act:

• Documents required for initial entrance;
• Vouchers, checks, vouchers, and promissory notes; receipts, invoices, orders for the payment of money, bills of exchange, and promissory notes;
• Any working papers or other documentation that are required to adequately describe how the financial statements were drafted as well as any revisions that were necessary during the process.

Despite the fact that electronic records can be used, the Act stipulates that any and all financial information stored in an electronic format must, within a reasonable amount of time, be converted into a paper copy. Even though a third party (such as the company's accountant) maintains the financial records of the company on their computer system, the individual company is ultimately responsible for this aspect of their business.

When viewed from a legal standpoint, the purpose of keeping accurate records is to guarantee that a person can accurately judge the financial status of a corporation based on the books. This contributes to increased accountability and openness.

The following are some examples of the different sorts of books and records that a firm ought to keep:

• Financial statements include profit and loss accounts, balance sheets, depreciation schedules, and taxation reports (for income tax, group tax, fringe benefits tax, business activity statements, and other supporting papers) are examples of financial statements.
• General ledger;
• General journal;
• a list of assets to be registered;
• Records pertaining to the cash on hand, such as the cash receipts journal, bank deposit books, cash payments journal, cheque butts, and petty cash books;
• Statements of bank accounts, bank reconciliations, and documentation pertaining to bank loans;
• The sales journal, the debtors ledger, a list of debtors, invoices issued, statements issued, and delivery dockets are all examples of records related to sales and creditors.
• receipt of invoices and statements and payment of said items;
• ledger for the creditors;
• Records for work that is currently being done, such as job or client files, stock lists, and records of creditors;
• invoices that have not been paid, along with any related correspondence, yearly returns and paperwork for the ASIC, and records pertaining to wages and superannuation;
• Details regarding each and every computer backup disc (it is recommended that you perform backups on a monthly basis);
• Maintains (if necessary) separate registers for each of the following: members, options, debenture holders, prescribed interests, charges, and unclaimed property;
• Meeting minutes from the board of directors;
• Compilations of minutes from member meetings;
• include, but not limited to, deeds of trust, debentures, contracts, and agreements (such as lease agreements); and
• any kind of transaction that takes place between different companies, including guarantees.

Those provisions of the Act that required firms to keep a register of all charges were repealed on the same day that the Personal Property Securities Register was made available to the public on January 30, 2012. On the other hand, this is only applicable to charges that were acquired after the aforementioned date. Therefore, businesses are required to continue to keep a record for charges that were held before to that date.

In addition, the Act does not mandate that small proprietary companies maintain financial statements (such as profit and loss accounts), unless the Australian Securities and Investments Commission (ASIC) or the shareholders specifically request it. However, these statements are an important business tool. Because of this, businesses in this position ought to give serious consideration to the possibility of preparing such statements, despite the fact that doing so is not mandated by any applicable laws.

The Act mandates that businesses keep all of their financial records for a period of seven years after they have been closed.

Obviously, this list of records is meant to serve solely as a reference. Because they are dependent on the firm, the criteria for keeping company records are different for each and every company. For instance, if your company is authorised to deal in futures or securities, you will be required to maintain a record that attests to this fact.

Tips For Keeping Your Business Records Up To Date

• At the end of each day, schedule some time specifically for catching up on everything and bringing it all up to date. Because of this, maintaining records is reduced to a quick and easy daily duty rather than a time-consuming and laborious one.

• Make an investment in company record keeping software such as Xero, which will enable you to send invoices, pay suppliers, export reports for your accountant, and a variety of other features that help you stay organised and on top of things.

Tips For Better Record Keeping

When it comes to running a company, one of the most difficult challenges is maintaining correct records while also making sure everything is easily accessible and organised. At Go Figured, we make record keeping easy because we manage everything on your behalf. However, we thought it would be helpful to give some straightforward advice in the event that it enables you to better organise your processes.

• Make use of any kind of accounting or record-keeping programme or software that enables you to take pictures of receipts and save the information digitally in a safe location on the internet. After all, one major problem is that receipts become less legible over time, which can create complications when it comes to claiming and being reimbursed for expenses.
• Ensure that you have a backup plan in place, as well as store all of your records in an electronic format. It is a good idea to keep your documents and records in the cloud, either through the accounting software or application you use or through a third-party service such as Google Docs.
• Employ a bookkeeper to handle the organisation and maintenance of your records for you. We make it easy for you to save, access, and generate reports on your papers, which frees up your time to concentrate on other, more important matters.

When Should Financial Records Be Kept?

• Keep any records that pertain to taxes for a period of five years after they have been prepared, obtained, or the transaction has been finalised, whichever comes first.
• Maintain your financial records for a period of seven years. For instance, documentation for the company's financial accounts can be required in the event that the company is subject to an audit or is put up for sale.
• Maintain your employment records for a period of seven years. You are required to keep payslips, as well as records of the hours worked, employment status, superannuation payments, and leave balances, in order to comply with the Fair Work requirements.
• 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

- In the event that you will at some point in the future require evidence that an item was purchased, you should keep the receipts for significant purchases with your insurance paperwork. For instance, in the event that the item sustains damage, you are required to file a claim with the insurance company.

- Documents pertaining to property and investments: If you are renovating your business premises, you should keep all receipts and records of improvements and related expenses made because it is possible that this can affect your capital gains tax.

Will Purchasing Accounting Software Be Sufficient For My Company?

Utilising accounting software is a significant step forwards in terms of helping yourself manage the compliance and performance management of your organisation; but, whether or not it is "enough" to do so relies on a number of important aspects.

• Time – If you have the time to study and master the use of accounting software to record business transactions on your own, then accounting software may be able to help you in certain ways maintain track of performance and compliance requirements.

If, on the other hand, you would rather spend that time supporting and expanding your business, then it is in your best interest to look into purchasing a package deal that includes both a subscription to accounting software and bookkeeping services.

• Expertise – The majority of companies do not have the accounting or tax expertise necessary to accurately record business transactions, construct and interpret financial reports, or comprehend how to maximise available tax deductions in order to lower their company's tax bill. This is true even if the company has an in-house accounting function.

Because of this, it is strongly advised that your company look for a reliable accountant who can work with you as a partner to guarantee that all of your requirements for reporting and compliance are satisfied.

Should I Bring an Accountant on Staff or Should I Outsource the Work?

Whether you choose to bring your accounting process in-house or outsource depends on your budget, how much time you have available, how convenient it is, and how much experience you have.

• Affordability: If you are just getting your firm off the ground, you probably won't be able to pay the salary of a full-time bookkeeper or accountant to handle your company's regulatory requirements and reporting requirements. It wouldn't be possible to do it as a full-time job because there isn't enough work.

By utilising the services of a professional bookkeeping and accounting firm, you will be able to pay for exactly what you require and scale up your services as your company expands.

• Time: The management of a complete company in addition to bookkeeping and accounting duties can be very taxing. Suppose you are the founder of a business that wears numerous hats, and the time spent on bookkeeping and accounting prevents you from spending time on tasks that will help the business develop and run. If this is the case, one smart move would be to outsource the work.

• Convenience: Even if your company is large enough to hire one or two full-time employees to manage the bookkeeping and accounting operations, it may still be more convenient to outsource these tasks. The processes of employing new employees, providing them with training, and the amount of time spent on staff retention can all be eliminated by outsourcing.

• Experience: Outsourced accountants and bookkeepers are experts who operate in a wide variety of fields and types of businesses. They are often well-organized and are able to effectively communicate with their clients.

It might be quite challenging to find an in-house employee that possesses the same degree of experience without paying a big price tag for that employee. One of the most important advantages, however, is that an in-house employee will have a more comprehensive understanding of the company's strategy.

Record-Keeping Procedures To Think About

1. Hold onto documents for at least five years

The Australian Taxation Office mandates that businesses maintain the majority of their data for at least five years. The following types of papers are included in this:

• All GST documents
• Invoices for taxation
• Payroll and compensation dossiers
• Keeping accurate records for tax returns, activity statements, tax returns on fringe benefits, and contributions to employee superannuation funds.
• Records of all financial and other transactions involving a business, including receipts (sales and purchases)
• Records record the purchase and sale of commercial assets, such as office equipment, buildings, or land, as well as any additional costs associated with those transactions.

In the meanwhile, it is required that some records be retained for a longer period of time. The following are the:

• Records of assessments that the ATO amends. In addition to the requirement that records must be kept for five years, you are required to preserve the following records for the duration of their respective modification periods.
• Income tax returns must be filed within two years for individuals and small firms, but within four years for all other taxpayers, from the day after they receive the notice of assessment.
• After receiving the notice of assessment and waiting four years, a business activity statement (BAS) must be submitted.
• Return on fringe benefits tax due three years after the day lodging occurred.
• You recycled some of your records for another fiscal year.
• Documentation of your assets' declining value. It would be to your advantage to keep it for as long as you own the asset in question. If the item was previously owned by you and sold or otherwise disposed of, you are required to repurchase it and keep it for at least another five years unless it was part of a low-value pool.
• Documentation of assets subject to the capital gains tax. It would be beneficial to keep it for the duration of the time you own the asset, plus an additional five years after you sell or otherwise get rid of it.
• Records pertaining to the Petroleum Resource Rent Tax (PRRT) have to be retained for a period of seven years.

2. Backup your documents

Keeping your records online protects them from being stolen or destroyed in a physical manner. Despite this, there is still a possibility that there will be data breaches. Putting together a plan to recover from a catastrophic event might make the sensitive data you store more secure.

3. Observe the ATO's guidelines

First and foremost, the most effective way to maintain accurate records is to stay current with the most recent official recommendations issued by the ATO.

The following is a list of the other standards for record-keeping that have been imposed by this entity that is responsible for the collection of revenue:

• Do not make any changes to your records. Every record must contain information that is truthful, accurate, and comprehensive. Take notice that if you manipulate your records in any way, you could be vulnerable to tax evasion charges.
• Keep your records safely stored to prevent any harm to them and to prevent unauthorised changes to the information they contain.
• It is required that all records be written in English, or at the very least, that they be easily convertible into English.
• If requested, you are required to furnish the ATO with your records.

You are also able to discover more about the ATO's record-keeping rules by visiting the organization's official website.

If you implement these best practises for record-keeping in your entity, you will have a clearer picture of the state of your company's health, which will allow you to better manage your cash flow, make sound decisions for your company, fulfil your tax and super obligations, and demonstrate your financial position to banks and investors.

Conclusion

As a business owner, you have a lot of expenses, and until some incredibly sophisticated record-keeping technology comes into play, where business and personal expenses are all records and instantly updated to the ATO, we all have to do our part to keep track of things. The bottom line is that record keeping is not simple. But if you realise that you are spending an excessive amount of time on documenting expenses or if you are simply sick of having to do the work, feel free to get in touch with us and we will handle everything for you.