How to Keep Financial Records

Good financial records are maintained on a regular basis, so plan time in your work schedule to get it done. Although initially it may seem that this time would be better spent on running your business, by doing your own book-keeping:

  • you'll minimise costs;
  • have more control; and
  • get a better understanding of your financial information and operations.

Once you understand the recordkeeping practices of your business you may decide to hire an employee to manage the daily transactions, or engage an external bookkeeper. You could also hire an accountant to prepare financial reports and tax returns.

Many small business owners handle their day-to-day book-keeping requirements but consult an accountant for help with formal reporting functions. Before deciding whether you will manage your own finances or outsource the process, it helps to understand the difference between book-keeping and accounting.

Bookkeeping

Bookkeeping records the routine financial transactions within appropriate account categories. A bookkeeper compiles the information that goes into the system, and the bookkeeping system provides the numbers for the accounting system.

For example: a bookkeeper may pay the bills, invoice clients, prepare your BAS and collect debts

Accounting

Accounting identifies, measures, analyses, and communicates financial statistics to provide useful information about your business. An accountant uses the financial information to advise you on the big picture about your business performance, and provides strategic advice for improving profitability and building your business.

Whichever option you choose for maintaining financial records, it's vital that you can read and understand your own financial statements, and that your financial recording and reporting methods are accurate and comply with relevant legislation.

For example: an accountant prepares your end of year accounts, annual depreciation calculations, provides advice on tax minimisation and maximising business deductions, and lodges your BAS.

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