Effective record keeping is a pivotal aspect of every business. Here you will discover the essential records to maintain, as well as best practices for recordkeeping duration and methods. Enhance your business by mastering these record management principles.
Benefits of record keeping
Keeping good records has numerous benefits. It can assist you in:
- Tracking your business' health enables informed decision-making
- Ensure tax and superannuation compliance
- Manage your cash flow
- Demonstrate your financial position to banks or other lenders
Tax and Superannuation records you must keep
Keep detailed records of all business transactions, including those that support the information in your tax returns and reports.
The records you need for tax and superannuation depend on your business obligations and structure (sole trader, partnership, company, or trust).
Tha Australian Tax Office (ATO) requires the following:
- Keep your records secure and unaltered, stored in a way that prevents changes or damage.
- Keep records for five years, starting from when you prepared or obtained them or completed the related transactions or acts, whichever is later.
- Be prepared to show the ATO your records upon request.
- Your records should be in English or easily convertible to English.
Check the record-keeping requirements of all organisations you interact with.
Record keeping tool
Utilise the ATO's record keeping evaluation tool to determine necessary business records and assess current record-keeping practices.
How to keep records
You can maintain records electronically or on paper. The ATO suggests using electronic record keeping for businesses, as they are transitioning to electronic reporting for tax and super obligations. Managing your records electronically can simplify tasks and save time once your system is set up.
If you maintain electronic records, no need to keep paper copies unless required by law or regulations.
You can store and keep paper records electronically. The ATO accepts images of business paper records stored on an electronic medium, as long as they are true, clear reproductions and meet record-keeping requirements. Once you save an image of your original paper records, you don't need to keep the paper versions.
Choose wisely, but remember to store your records securely. Back them up and, if possible, opt for off-site storage, like the cloud.
The records must also be on a computer or device that:
- You have access to (including all passwords)
- Is backed up in case of computer failure
- Allows you to control the information that is processed, entered and sent
How long to keep records for
In general, most records should be kept for five years. This includes records obtained, prepared, or completed about transactions or acts. Sometimes, you may need to retain records for more than five years.
Companies are mandated by the Australian Securities & Investments Commission (ASIC) to maintain records for seven years.
Choose a manual or electronic bookkeeping system
Manual bookkeeping systems use books or ledgers, commonly available at local newsagents, office supply stores, or bookstores.
There are several advantages for a manual system:
- More cost-effective to set up
- The probability of data corruption is significantly reduced
- An easier system to use if you're unfamiliar with accounting software.
- Duplicate copies of records are typically avoided.
Electronic bookkeeping
Systems are now transitioning to digital record-keeping, making it an opportune moment to embrace this electronic shift.
Some advantages of digital record keeping include:
- Less physical storage space
- Automatically calculates amounts
- Easy to generate reports
- Easy to back up and keep safe in case of fire or theft
Your electronic options include accounting software, web-based systems and spreadsheets.
Accounting Software
Off-the-shelf or customised accounting software streamlines your processes and enhances efficiency.
It also helps with:
- Recording your transactions
- Calculating good and services tax (GST)
- Updating ledgers
- Preparing financial statements
- Generating invoices
Web-based bookkeeping
A web-based or ‘cloud’ system helps:
- Access your books from anywhere with ease and convenience.
- Provides automatic off-site storage for your financial records
- Is a more affordable digital option
Spreadsheet Accounting
If you're computer-savvy but short on funds for accounting software, try using spreadsheets for managing your accounts.
Point-of-sale (POS) Systems
As your business expands, consider updating or upgrading to a POS system. These computer systems aid in sales processing and record keeping.
Depending on the system you choose, POS systems can automatically:
- Update sales income and inventory records.
- Create receipts, invoices, and tax invoices.
- Process EFTPOS and credit and debit card sales
Consider business needs when buying a POS system.
