The Importance of Keeping Business Records
Economics 101: We live in a world where our wants are unlimited but the resources to meet them are scarce. Good record keeping is an essential tool to help best manage this eternal conflict. For the business owner this conflict is expressed in the form of how do we maximise profits with the limited capital, property and human resources that we have available?
For too many small business owners, bookkeeping is a necessary evil required only to keep up with compliance requirements. This mindset tragically blinds those who hold it to a wide world of opportunities. The business owner who takes a proactive approach realises that good business record keeping is an essential resource to enable informed decision making involving a whole range of matters, including of course keeping on top of compliance.
Keeping good business records is about much much more than just managing your tax obligations yet it is an inability to manage these matters that leads to most business failures. Therefore we will start with these words about record keeping from the Australian Taxation Office. Here is a summarised version of what the ATO has to say:
Keeping good records is essential for people in small business. Maintaining good records of your transactions and tax invoices will help you to manage your cash flow and make sound business decisions. It will also make it easier for you to meet your tax obligations, and potentially save you time and money in the future.
Good record keeping
There are a number of reasons why you should keep good records of your business transactions. Good record keeping:
- makes it easier for you to meet your tax obligations
- makes it easier for you to understand how your business is doing
- helps you make good business decisions.
Record keeping is a legal requirement. By law you must keep business records for at least five years, either on paper or electronically. They must be in English or in a form that can easily be converted.
If you don’t keep the right tax records, you can incur penalties. Poor record keeping is also one of the main reasons why some small businesses fail.
Allow time each week to keep your records up-to-date. This helps when it’s time to do your tax as all the information is already there and you’re not overwhelmed with paperwork. This frees up time to focus on making money instead of doing paperwork.