Keeping Good Financial Records
The New Year is now in full swing and many business owners are resolving to make a fresh start with their business by creating and maintaining good financial records. It is vital that you keep records of the amount of money coming in and out of your business, as it can give an indication of how well your business is going. Legally, as a business owner you are required to keep correct and honest business records. The records must be legible and in English, and be readily accessible. If these are kept correctly the records should explain your business’s financial performance and position, it can also help to prepare you, should you be audited at anytime.
Keeping good records requires more than just knowing which records to keep and for how long. It also includes setting up systems and maintaining records in a way that makes it easier for you to monitor the progress of your business, business growth, which items are selling or changes that need to be made – knowing how best to keep records can be the difference between the failure and success of your business.
Organising your financial records isn’t difficult and does not take up a lot of time. These days we have the option to have our financial records electronically sorted and filed, although it is recommended that you also keep hard copies and back-ups of the files in order to prevent any technical issues that could occur if your computer were to fail. A few basic financial records that your business should be keeping include:
There are a variety of bank records which ideally should be kept within every business’ financial records, some include:
•Trading account bank statements
•Cheque and deposit butts with clear descriptions on the purchase
•Petty cash books.
Invoices and Receipts
Be sure to make a photocopy of all of your business’s invoices and receipts that are distributed to your clients. This will assist in keep track of your accounts receivable and will provide you a reference point for the dates sent and the amounts owed.
Keep receipts and invoices for the goods or services your business has purchased and have these well organised. By doing this, tax time can be much easier and stress free, since everything will already be in workable order. This should make determining what to claim deductions for, and any other tax concessions a much easier task.
Most receipts are printed on thermal paper where text fades over time or it turns black when exposed to extreme heat. To combat these problems, you can
•Photocopy these receipts and file these copies. A photocopy of the original receipt is sufficient for the ATO, provided that the copies are a true and clear reproduction of the originals.
•Scan and file the receipts electronically. If you make electronic copies they must be a true and clear reproduction of the original. We recommend that if you store your records electronically you make a back-up copy to ensure the evidence is easily accessible if the original becomes inaccessible or unreadable (for example, where a hard drive is corrupted).
When paying bills with internet banking you should always print out the confirmation page and attach it to the bill to indicate that it has already been paid. Bills paid by person should have the receipt attached and if by cheque, it should be photocopied.
Keep a record of all of the wages/salaries you pay to your employees, superannuation contributions and the monies withheld for tax. One reason as to why it is important that you have these records on file is that it can be used as evidence to dispute claims raised by employees as well as assisting with Payroll Tax requirements.
It is also important to keep records of all of your business’s tax returns, other documents submitted to the ATO, along with those submitted to federal or state entities (e.g. Payroll Tax documents which are dealt with by the OSR). Contracts, agreements and loans or any other documents that confirm entries in your accounts should also be included. Finally in order to maintain good financial records you will need to have an efficient cashbook that will show daily records of sales, expenses and drawings.
File the records in a safe place and organise them so you can easily find something without having to rummage through. It is a good idea to write down the method in which the documents have been filed in order to allow easy navigation for anyone who needs to access the files. Financial records should be kept for 7 years.
Your records should be filed continuously as a routine so piles of important documents aren’t just left lying around. Although it may seem time consuming, try to remember that it is much quicker and easier to organise your financial records regularly than it is to sort through several month’s worth of documents piled in no specific order! Maintaining financial records is not only important but also helps you to better understand your business’ financial situation and can allow you to easily identify potential problems or capitalise on opportunities.
If you find that maintaining well organised financial records is too difficult or time consuming it is important that you seek the help of a professional. Here at The Quinn Group our experienced team of accountants and bookkeepers can assist you with organising your financial records. For this or for any other accounting issues submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.