Setting up your business is exciting and challenging, and will hopefully bring you the rewards you deserve, along with the autonomy you dream of. However, if your business is going to be profitable, it’s vital that you get the accounts right. That starts with making sure you set up the books correctly.
1. Comply with the law
All businesses must register for an ABN. If you turn over more than $75,000, you will also need to be GST registered. Registering for PAYG Withholding Tax is also essential if you employ staff.
In addition, it’s vital that you keep all records relating to income tax, GST, payments to employees, superannuation, fringe benefits tax, fuel tax credits and business payments. The law requires you to keep all these records for five years and have them accessible on request.
2. Know what bookkeeping is about
Bookkeeping is the process of organising, recording and reporting on the financial transactions of your business. This involves several different processes:
- Keeping track of daily transactions.
- Sending out invoices and managing accounts receivable, including chasing late payments.
- Managing accounts payable, including payment of supplier invoices, expenses and petty cash.
- Maintaining the balance of income to expenses, to make sure the business doesn’t run out of day-to-day money.
- Making sure the books are valid and up to date whenever the accountant needs them.
Good bookkeeping will keep your business running smoothly day to day, and will make your accountant’s job a lot easier.
3. Choose what type of accounts you want to keep
There are two main types of accounting systems:
- Cash-based accounting. This records transactions at the time the cash was paid or received, not when the transaction actually occurred. It is a relatively easy system and involves little paperwork, but it can be prone to errors. It is usually used by small businesses who mainly deal with cash transactions.
- Accrual-based accounting. This records transactions at the time they occur, even if the money has not been paid yet. This is the most widely used method and is more accurate but can be more complicated, although it makes it easier to record transactions like wages and credit.
Some businesses use a combination of the two. If you’re not sure which would work best with your business, check with your accountant – he or she is the person who will be helping you out come tax time.
4. Choose your system
Most businesses these days use some form of electronic bookkeeping. There are a variety of options to choose from here, but all require you to be accurate on a computer and have a good backup procedure where information is stored off site. Options include:
- Spreadsheets. These are the simplest electronic option and are ideal if you’re accurate at data entry and don’t want to spend out on a full accounting package.
- Software. Accounting software packages must be compatible with Standard Business Reporting. It’s also vital that you make sure you choose a package that meets the needs of your business.
- Web-based. “Cloud” systems have the advantage of being able to be accessed from any location, and also solve the problem of off-site data storage. They are usually cheaper than standard software.
5. Stay on top of it and have a great accountant!
It’s vital that you stay on top of the books in order to make sure your business is running as it should. Allocating a set time each week to devote to your books ensures that this habit becomes part of your work routine. It also should help you maintain your profitable business, without getting you too confused in the process.
Make sure you choose an accountant who you feel comfortable asking questions of, and who can guide you through the setup of your books. Great accountants can act as advisers and really make a difference to the success of your small business.