Business owners invest a lot of time and effort into the running of their businesses and yet many fail to realise the importance of maintaining good records.
Keeping records is like keeping score. If no-one kept score of a game of sport, there would be no winner. The game would be pointless.
The same applies in your business. By keeping the score, you are able to work out if you’re winning – that is if you’re making a profit.
Most people do not know the current “score” of their own business due to poor record keeping.To make decisions, you need to report on key performance indicators. To generate these reports, you need records. And these records must be accurate and current.
How to keep accurate and current records
Your record keeping system should be reliable, easy to follow, consistent and simple and reviewed regularly.
Develop systems and procedures to ensure the way you keep your records is consistent and easy to follow. This will ensure fewer mistakes are made and your information is easy to access.
For example, are you cross referencing?
Is your filing system easy to follow and maintain?
Can your records be understood by more than one person?
Are you collecting enough information?
Are you records being updated regularly enough?
Is all the information in one, easily accessible place?
You also need to review your process regularly to ensure it still fulfils the needs of your business. Businesses grow and change as time goes by, so your systems need to change with it.
It is often beneficial to seek advice on developing a sound system that suits your needs, so have a chat to us about your current process and how it could be improved.
Choose the right accounting package
In order to achieve accurate record keeping, we recommend you use an accounting software package. This way all of the information regarding your business is available at the tip of your fingers.
There are many accounting software systems available, all tailored to different needs of different businesses. It is vital to have the best software for your business.
If you’re not sure which accounting package is right for you, elliotts will assess your needs and recommend the most suitable system for your business.
Set up your accounting package correctly
You need to set up your accounting and record keeping system so you can report on the KPIs you need to measure to keep score of your business.
The best place to start is by determining the end outcome. What you want to get out of the system determines what you need to put into it.
You then need to consider whether or not your chart of accounts reflect the information you need to measure and whether or not the software has the ability to report on meaningful information?
elliotts can assist you in determining what you need to get out of your system and help you generate meaningful reports so you can develop strategies and make decisions to improve your business.
Ensure staff are trained in record keeping
Ensure staff are trained in and understand your record keeping systems. If they know why you do something the way you do, they are more likely to continue doing it that way.
When you develop your record keeping system, create a training manual and process to ensure your systems are adhered to. As well as step-by-step training, include the “why” of the process.
Review your records regularly
Reviewing your records on a regular basis (i.e. monthly or quarterly) is vital to maintaining the integrity and accuracy of your records. Regular reviews will ensure you pick up on errors before they become too difficult to correct, and ensures your data is delivering the right information to you for decision making.
elliotts’ fixed fee annual accounting service includes two reviews per year of your records, as well as suggestions to help you simplify and improve your record keeping and reporting.
You can also choose to have these reviews conducted on a more regular basis, depending on the needs of your business.
Record keeping and tax obligations
To protect the deductibility of expenses claimed by your business and to meet your obligations under tax law, it is essential that good record keeping procedures are enforced as the onus of proof is on the taxpayer.
Unless you keep supporting records to substantiate deductions claimed or income declared, there is a risk that the Tax Office can declare that deductions will not be allowed or certain income will be assessed.
If you can not argue otherwise by supplying supporting records, there is a danger that more tax will be payable on a higher assessed taxable income.
Records are normally required to be kept for 5 years from the date on which the record was prepared or obtained or from the time the relevant transaction or act was completed, whichever is the later. This period may be extended to a longer period if there is an amended assessment involved.
Just another very good reason to maintain good records…
Benefits of good record keeping
If you weren’t convinced already, keeping clear and accurate records will contribute to the success of your business in the following ways:
- Allows quick and accurate preparation of financial statements;
- Provides information to help control cash flow;
- Provides information to aid in strategic decision making;
- Enables access to the financial situation of the business at any time;
- Saves a lot of time and effort;
- Measures the business performance against the projections that were originally set in the business plan;
- Highlights areas where problems could arise and enable remedies to be put in place;
- Fulfils the obligations under taxation law;
- Assists you in calculating how much tax you have to pay;
- Assists in providing information required by your bankers;
- Provides valuable information and details for the future sale of your business where that is required;
- Increases the chances of the business operating and achieving success.
What’s your score?
Call us today on 07 3833 3999 to find out how we can help you keep score of your business.