Keeping good business records is more than just knowing which records to keep and for how long. Importantly, it is also about setting up systems and maintaining records in a way that makes it easier for you to monitor the progress of your business. With good business records you can easily obtain information and updates about business growth, which areas of the business are doing well and changes that need to be made.
It is Important to Keep Good Business Records
Understanding what is required in order to have good business records, and implementing that knowledge, can be the difference between the failure and success of your business. If you do not have accurate records, you cannot make informed decisions to move the business forward, or take corrective action when things start to get off-track.
Legally, as a business owner you are required to keep correct and honest business records.
There can be legal and financial consequences if your business doesn’t comply with these record-keeping requirements.
How to Keep Good Business Records
To meet your record-keeping requirements and avoid common errors, ensure you understand what records are needed for your business and make accurate and complete record-keeping practices a part of your daily business activities. As your business changes or grows, you may need to review what records you need to keep.
If administered correctly, organising your business’ records shouldn’t be a difficult and time consuming task. Rather than being a laborious chore, the practice of keeping good business records should be established as a regular part of your business processes.
While it might not feel important at the time, it is definitely much quicker and easier to take care of your business record keeping and filing in smaller increments and on a more regular basis, rather than allowing piles of important documents to accumulate and be left lying around.
With the convenience of a range of online and electronic programs designed to make business record keeping a simpler and more efficient task, there is really no excuse for not maintaining good business records. In addition to the electronic record keeping, it is recommended that you also keep hard copies and back-ups of the files.
Have a clear system or process for filing the records (both hard copy and electronically) in a safe place and organise them in a logical way so that you, or anyone else that needs to, can easily find something without having to rummage through a mountain of unorganised documents. 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.
In most instances, financial records should be kept for 5 years.
Payroll records such as salary, tax withheld, superannuation and workers compensation insurance, are required to be kept for a minimum of 7 years.
When it comes to CGT assets, you must keep all relevant records for a period of 5 years after the asset is sold or disposed of.
It is a good idea to have a process in place for regularly archiving and/or discarding files that are no longer required. This will avoid accumulating large amounts of files that are not needed.
You’ll definitely appreciate having taken the time to establish and maintain good business records when the time comes that you need to locate a particular file or piece of information in a timely manner.
5 Rules for Business Record Keeping
- keep all records related to starting, running, changing, and selling or closing your business that are relevant to your tax and superannuation affairs.
- relevant information in your records must not be changed (for example, by using electronic sales suppression tools) and must be stored in a way that protects the information from being changed or the record from being damaged.
- You need to keep most records for five years.
Generally, the five-year retention period for each record starts from when you prepared or obtained the record, or completed the transactions or acts those records relate to, whichever is later. However, in some situations, the law states that the start of the five-year retention period is different.
- records must be readily accessible to be able to be shown to the ATO or other organisations who may request to see them
- records must be in English, or able to be easily converted to English.
Benefits of Keeping Good Business Records
One of the most common factors among businesses that are doing well, is that they have accurate and complete business records.
Keeping accurate and complete records allow you to:
- monitor the health of your business and know whether your business is running at a profit or loss
- make sound business decisions
- keep track of money you owe and money owed to you
- monitor your cash flow to help you to make payments on time
- avoid penalties which may apply for failing to keep records
- demonstrate your financial position to lenders, businesses, tax professionals and prospective buyers
- more easily meet your tax, super and employer obligations, including preparing and lodging your returns, BAS, and taxable payments annual report (if you are a business that is required to)
- provide the information needed if your business is audited by the ATO or another organisation, potentially making the process easier and shorter.
What Business Records Do I Need to Keep? And What Information Should be on Them?
You are legally required to keep records of all transactions relating to your tax and superannuation affairs as you start, run, sell, change or close your business, specifically:
- any documents related to your business’s income and expenses
- any documents containing details of any election, choice, estimate, determination or calculation you make for your business’s tax and super affairs, including how (basis or method) the estimate, determination or calculation was made.
What is a Record?
A record explains the tax and super-related transactions conducted by your business.
The record needs to contain enough information to be able to determine the essential features or purpose of the transactions, so anyone reviewing the records can understand the relevance of the transactions to your business’s income and expenses.
The minimum information that needs to be on the record is generally the:
- date, amount, and character (for example, sale, purchase, wages, rental) and the relevant GST information for the transaction
- purpose of transaction
- relationships between parties to the transactions, if relevant.
A few basic financial records that your business should be keeping include:
Bank records such as trading account bank statements and credit cards.
Invoices & Receipts – this includes copies of invoices and receipts that are distributed to your customers or clients as well as receipts and invoices for goods and services that your business has purchased.
Employee Payments – keep a record of all of the wages/salaries you pay to your employees, superannuation contributions and the monies withheld for tax. These records 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 Revenue NSW). 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.
Take Action, Ask for Help
If you find that maintaining good business records feels overwhelming or too difficult, it is important that you seek the help of a professional sooner rather than later, to avoid the problem accumulating even further.
At The Quinn Group our experienced team of tax accountants can assist you with organising your financial records and establishing good practices to keep things in order going forward.
Submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment with us today.