Running a small business in Australia can be rewarding, but it also comes with responsibilities. One of the most important tasks is keeping accurate records of your business activities.
Proper record keeping keeps your business organised and helps you meet legal and tax requirements. Here’s what you need to know about record keeping for your small business.
Why is Record-Keeping in Small Business Important?
Record keeping might not be the most exciting part of running a business, but it’s essential. Here’s why:
- Stay Compliant with Tax Laws
The Australian Taxation Office (ATO) requires you to keep records of your business transactions. This helps ensure you’re paying the right amount of tax and meeting your superannuation obligations. - Monitor Your Business’s Finances
Keeping track of your income and expenses gives you a clear picture of how your business is performing. This information can help you make better decisions about your business’s future. - Manage Cash Flow
Knowing how much money is coming in and going out of your business helps you manage your cash flow more effectively. - Attract Investors or Buyers
If you ever want to sell your business or attract investors, having organised records will make it easier to prove your business’s value. - Save Time and Money
When it comes time to file your taxes, having well-organised records can save you and your accountant a lot of time and hassle.
Small Business Record-Keeping Requirements
The records you must keep will depend on your business structure (whether you’re a sole trader, partnership, company, or trust) and your tax obligations. However, here are some common types of records every small business should keep:
- Income and Expenses
Keep records of all the money your business earns and spends. This includes:- Invoices
- Receipts
- Bank statements
- Employee Records
If you have employees, you’ll need to keep records of their pay, leave, superannuation, and any taxes you withhold (like PAYG). - Capital Gains Tax Records
If you sell any assets, you’ll need to keep records to calculate any capital gains tax you might owe. - Fringe Benefits Tax Records
If you provide fringe benefits to your employees (like a company car), you’ll need to keep records for tax purposes. - GST Records
If your business is registered for GST, you must keep records of your GST transactions.
How Long Do You Need to Keep Records?
In most cases, you need to keep your business records for at least 5 years from when you made the transaction. However, there are a few exceptions:
- Employee Records: You must keep these for 7 years.
- Capital Gains Tax Records: These should be kept until at least 2 years after you’ve offset any capital losses against capital gains.
- Company Documents: These need to be kept indefinitely.
How Should You Keep Your Records?
You can keep your records either on paper or electronically. However, more and more businesses are choosing electronic record keeping because it has several advantages:
- Easier to Manage
Electronic records are easier to organise and find when you need them. You can also generate reports with just a few clicks. - Less Storage Space Needed
With electronic records, you don’t need to worry about filing cabinets or boxes of paperwork. - Automated Processes
Many accounting software programs, like MYOB, Xero, and QuickBooks, can automate tasks like tracking income and expenses, generating invoices, and preparing reports. - Secure Backup
You can back up your electronic records to the cloud, so you don’t have to worry about losing them if something happens to your computer or office.
If you choose to keep electronic records, make sure your software meets Australian tax requirements. It’s also important to store your records securely, keep them in English, and be ready to provide them to the ATO if they ask.
Simple Record-Keeping for Small Business
Record keeping might seem like a chore, but it’s a vital part of running a small business in Australia. By keeping accurate and organised records, you can ensure you’re meeting your legal obligations, staying on top of your finances, and saving time and money.
Whether you choose to keep records on paper or electronically, the key is to stay consistent and organised. In the long run, good record-keeping will help your business thrive.