When you really know your business, you make better business decisions. Staying on top of your financial record keeping keeps you across your business’s health, helps you meet tax and superannuation obligations, manage cash flow, and demonstrate your financial position to external parties. (Hello, investors!)
If you're reading this, you're probably a busy small business owner or startup founder. So we'll get right to it! Here are the 6 reasons why keeping good records is important for SMEs.
1. Prevent fraud or theft
Keeping detailed records of all expenses and transactions is key to a good fraud prevention process. When you understand your cash flow, you know how much is coming in and out of the business. This makes producing accurate financial statements easier, as well as identifying anything that doesn't add up.
2. Simplify your taxes
Good record keeping practices will help you pay your taxes accurately and on time, avoiding nasty letters from the ATO. As a startup or SME business owner, every dollar counts and it's important to stay on top of all the financials.
3. Comply with Australian business laws
Compliance is key and solid business record keeping helps you obey the laws of doing business. Using cloud-based accounting software like Xero drives good record keeping practices and lets you organise, store and retrieve records easily.
Online accounting tools can also integrate with other business systems to ensure seamless data synchronization and provide accounting-friendly solutions that are affordable and user-friendly for startups and SMEs.
4. Control your cash flow
Cash rules everything when it comes to running a growing company. Maintaining a healthy cash flow can be a buffer against unforeseen circumstances (like a pandemic!).
Record keeping helps you identify and understand where the cash is coming in and going out. Plus, you can make an accurate projection of your company’s financial health.
5. Save time and admin costs
When you get to the fun part of doing business. Like year-end reports (/s), a good record keeping system can save time and money. Don't waste time looking for receipts. If you kept good digital records, they'll be easily accessible meaning you stay compliant with regulations and deadlines.
By storing all documents and records online, you increase operational efficiency, reduce transportation and storage costs, search records faster and easily access records from multiple digital devices. That's a lot of wins.
6. Close loopholes and increase financial oversight
Record keeping can help to justify and explain why certain decisions were taken. So many businesses fail because they simply run out of cash. Having consolidating records will enable businesses to make better decisions. With your business survival at stake, having loopholes and poor oversight can lead to money being wasted or misused.
ATO Record Keeping Rules: What Do You Need to Keep and For How Long?
To remain compliant under Australian tax law, most businesses must keep their records for five years from when the records were prepared or obtained, or when the transaction was completed (whichever is later).
Your record-keeping system must store:
- Income and sales records: Tax invoices, cash receipts, and point-of-sale logs.
- Expense and purchase records: Supplier tax invoices, receipts, and credit card statements.
- Year-end records: Depreciation schedules, debtor/creditor lists, and stocktake records.
- Employee and payroll records: Superannuation payments, PAYG withholding records, and single touch payroll (STP) data.
Learn How To Keep Good Records With Our Xero Training Service
Now that you understand why record keeping is so important, all you need to do is start putting it into practice in your business. Make a brilliant business decision today and get in touch with our business management and bookkeeping experts . Get in touch to learn more.
