Is Good Record Keeping Essential?
Keeping good records is an essential tool to use for managing a your business. Why? Because it give you the information you need to understand exactly what your business is doing. Poor record keeping, on the other hand, allows you to delude yourself into thinking that things are fine.
Good record keeping will help you manage your business, meet your tax obligations and make sound business decisions. It will save you time, money and a great deal of heart ache!
Specifically, keeping good records will help you:
- check the health of your business
- determine costs and profitability
- monitor your cash flow
- monitor your stock
- demonstrate your financial position to banks and other lenders, or to prospective buyers of your business, complete and lodge activity statements and income tax returns
- and pay your tax on time
Good Business Records, Successful Business
Broadly, there are a few main categories you should keep in mind for record keeping:
- income and payments you receive
- expenses and out-goings
- employee details
- tax matters, including prior year records, advice from lawyers and accountants and correspondence from the Tax Office.
- operational matters, including asset registers, trading stock movement records, rental and lease paperwork and bank records.
And if you’re not sure whether to keep a certain record or not, keep it anyway. Better safe than sorry, and you can decide at tax time if it’s still worth keeping.
For starters, keep the records for your business and personal expenses separate. You’ll need to know what qualifies as legitimate business expenses and what doesn’t. You will probably be better off having a separate bank account for your business, and if using a credit card, get a separate one in the name of the business.
Insist on receipts or invoices for everything possible, and keep these in files along with bank statements. If you’re using vehicles in the business, get on top of the records you need for that, such as kilometres travelled, logbook and so on.
Keeping your business records up to date is one of the most important factors in operating a prosperous business. Always understanding the exact state of your accounts will have you ready to accurately read the financial landscape and make all the right moves.
This video from the Australian Tax Office describes how good record keeping makes it easier for you to meet your tax obligations.