TOP 5 BOOKKEEPING TIPS
1. Keep all your receipts
In general, you’ll need to keep receipts for all your business expenses. This includes cash purchases, receipts from cheque books and credit card vouchers.
Your receipts should show:
- name of payee or payer
- the amount paid
- proof of payment
Receipts to keep:
- inventory - stock from suppliers, raw materials
- assets - such as property, motor vehicles, furniture, machinery, tools and equipment
- general business – software, stationary
- training – receipts from educational coursestravel expenses – all receipts from any travel, including food, accommodation and transit costs.
Remember: If you buy something for your business, but sometimes use it for private use, you’ll also need to keep records showing what percentage of that was private.
Do I need to keep paper receipts? No, you don't need to keep physical or paper copies of your receipts, but if you're claiming something as a tax deduction, you have a legal obligation to retain that business record – either physically or digitally - for five years. It is your responsibility to ensure that you can access your records, so that the Australian Taxation Office (ATO) can review them at any time.
Find out more about good record keeping and accounting systems, and if you’re a sole trader, check out how the ATO app’s myDeductions tool can help you keep track of your expenses without the worry of lost and faded receipts.
2. Reconcile bank accounts regularly
Xero and MYOB and other recent accounting software solutions make it very easy to complete a bank reconciliation, i.e. matching accounting transactions to bank statement lines.
A bank reconciliation is one of many ways to check that your accounts have been entered correctly.
If your financial statements are only prepared annually, say for your tax return, then you would only complete a bank reconciliation once per year. Quarterly financial statements are useful if you are lodging quarterly Business Activity Statements to report GST.
However, there are other reasons to prepare a bank reconciliation.
Before contacting debtors
If you extend credit to any customers, you know that some of them will not pay on time and need to be contacted. Before you contact them, you should check that they haven’t paid yet.
This another situation where a bank reconciliation helps. As part of completing the bank reconciliation, you will need to enter customer payments into your accounting system.
Once the bank reconciliation is complete, you can then contact debtors, confident that they haven’t paid since your previous reconciliation.
Before paying creditors
This one is mostly relevant to larger businesses that have multiple staff working in different areas of the accounts.
Complete a bank reconciliation to ensure that your accounts correctly show that a bill has or has not been paid.
You don’t want to double-pay a bill, and you do want to know what hasn’t been paid yet.
Some of my clients complete a bank reconciliation daily.
Why does this help? When one of their customers calls, they can quickly check in Xero or MYOB to see whether they should take the opportunity to talk to the customer about their outstanding invoice(s). My client collects invoices quicker, which keeps their cash flow healthy.
3. Follow up unpaid invoices
Late-paying customers can cause serious stress for any business. Chasing them down for payment can be awkward, not to mention the strain it places on your cash flow.
To help alleviate some of that stress, there’s some systems you can put in place to help you get paid on time, every time.
Here are a few ideas:
- keep tabs on what's due
- set up automatic payment reminders
- pick up the phone
- add a pay-now option - available in MYOB and Xero software
4. Put money aside for income tax and GST
As a small business owner if you don’t allocate money to pay your taxes, then tax time can come as a nasty surprise. If you haven’t allowed for tax on income then you could be hit with a bill for thousands. If that money has already been spent, you may find yourself in trouble with the ATO. Depending on your earnings and business structure, you could be paying anywhere from 0 to 47% tax. If your business is registered as a company you will pay a flat rate of 30% on all business income, which is a disadvantage for low-income businesses, but a significant advantage for very high-income businesses. If you operate as a sole trader, or are in a partnership, you will be paying tax at the individual tax rate. By estimating the amount of income you expect to earn over the year, you can refer to the ATO’s Individual Income Tax Rates to get a good indication of the amount of tax you’ll need to pay.
Goods and Services Tax (GST)
Depending on the amount of income your business generates, you may need to do business activity statements (BAS) monthly, quarterly or yearly. Your GST obligation is separate from your income tax, so you will also need to set aside money to pay your GST in accordance with the frequency of your required BAS submissions. Basically, the more money your business makes, the more often you need to file your BAS, and the more frequently you need to pay GST. The reason for this is that GST is not a tax on your income, it is a tax that consumers pay on the goods and services they buy, with the businesses selling those goods and services acting as collection agents for the ATO. In essence, you are simply handing over other people’s tax that you have collected to the ATO. In normal circumstances, businesses will have to pay GST because the 10% they have charged to all of their customers should be more than the 10% that their suppliers have charged them. If you paid your suppliers the same amount of GST as you charged your customers, you wouldn’t have to pay any GST, no matter what your income was. Unless you have some form of exemption this is unlikely, so it is a good idea to set aside 10% from any income you receive in a separate account to cover your GST obligations.
5. Keep books up to date
Keeping your books and records up to date can be a chore but in the long run it saves money and heartache if it’s well done. Here at Bookkeepers Bunbury we can help you develop an efficient approach that works for you and provides the accurate and timely information you require to run your business.
- In-house bookkeeping
- Outsourced bookkeeping
We hope this blog has been helpful.
BOOKKEEPERS BUNBURY TEAM