Record Keeping and Business Management
How difficult is it to keep proper financial records?
Regardless of the complexity of your business, it is important to keep proper financial records. MYOB and Quickbooks are both fantastic, relatively easy to use software packages that can handle everything from inventory to payroll – and if you only need a basic package to track income and expenses, these are available as well. That said, until your business reaches a certain level, an excel spreadsheet may be all you need to track the income and expenses related to your business – particularly if you are not registered for GST.
It is important to have some sort of system though. You should be able to extract data quickly and easily which tells you how your business is travelling – for example, you should be able to find out how many items you have sold over a particular time period, what the profit was on those items, and how much total profit you have made over a time period. These are all important ways of measuring how your business is performing.
If you are running your enterprise as a business (rather than a hobby) you should keep receipts for all expenses associated with your business for at least 7 years (to be on the safe side). Our tax system is “self assessment” which means that the ATO do not “audit” your tax returns as they are lodged; however, they do perform random reviews and audits for a time period following lodgement of the returns (usually between 2 and 4 years). Reviews and audits are much more pleasant if you have kept good records and if you have a system that allows you to find things easily.
What program should I use?
As mentioned above both MYOB and Quickbooks are used regularly for small businesses – everyone will have a different opinion about which package is better. In my opinion, Quickbooks is better for those people with some level of understanding of accounting and MYOB is better for those people who really have no idea of general accounting concepts. Quickbooks provides more flexibility and is probably a more powerful accounting program however, I think this can be a bit dangerous when combined with someone who has no accounting knowledge.
Do I have to worry about Business Activity Statements (BASs)?
If you are registered for GST you will need to lodge Business Activity Statements (BASs) either quarterly or annually. Refer to the second blog in this series to find out whether or not you need to register for GST (link to the blog).
You may also need to lodge BASs if you are paying tax on your income. For example, if you have a business profit of $30k when you lodge your tax return, you will need to pay tax on this profit. In addition, once the tax office receive your tax return, they will assume you are going to make $30k profit in the following year and they will start sending quarterly statements to you to start collecting the tax for the following year (called the Pay As You Go system). If your profit in the following year is significantly less than the year before you can “vary” the instalments on the activity statements.
Year End Checklist For Small Businesses
Here are a few items to consider in the lead up to 30 June:
1. Are there any expenses that you could pay prior to 30 June (which would allow you to claim the expense in this financial year and therefore reduce your tax). This will only be an effective tax planning technique if you have profit that you want to minimise. If you are in a loss, then you will not be paying tax anyway.
2. Is there anyway that you can push income into the following year (i.e. invoice in July rather than just before 30 June)? Same applies to the item above, this will only be effective where you are trying to minimise profit and therefore tax.
3. If you carry stock, you should do a stock take so that you can claim as an expense any items that have gone missing during the year. It is also good business management to do this annually to ensure that your physical stock matches your accounting records.
4. Now is a good time to review your debtors (if applicable) and make the decision to write any debts off that are not recoverable. This will ensure that you are able to claim the “bad debt” as an expense in this financial year.
5. Now is a good time to consider making any donations and/or superannuation contributions (if applicable). Both are great, legitimate ways of reducing your taxable income.
6. You could consider prepaying some expenses (most small business can claim prepayments where the expense relates to the following financial year) – examples may be rent, insurance and interest. Again, this will only be relevant where you are trying to minimise tax in the current financial year;
7. Talk to your accountant and ensure you have a clear understanding of your tax return lodgement deadline. This can differ depending on the size of your business and whether or not you are lodging through a tax agent.
Please note that the information contained in this post is provided as general information only; none of the information provided takes into account your personal circumstances. It is important that you seek advice from your accountant in order to address your specific circumstances.
Written by Sharon Parker of The Robin Street Market especially for the CHA.
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This was the final instalment for the Your Craft Business series of blog posts by Sharon. Was this article useful? Have more to add? Please leave a comment.... we really want to hear from you! Yes you!
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