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Good records, good business

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Separate business from personal

Tax time can be a challenge for every business, especially when you’d rather be out counting recordsinsidefeatoff some 'me-time' than be trapped behind a desk doing paperwork.

Good record keeping is one of the often-neglected but crucial elements of running a successful business, and is indispensible to the very core of your enterprise. Without the right records, your business can miss out on income, be saddled with an unmanageable cash flow, risk being fined for late payments or for neglecting regulatory responsibilities – and even pay more tax than you have to.

The reason that should be most front-of-mind of course is that the requirement to keep certain records is written into the law. Break the law and you’re in real trouble.

But if you have been doing the right things throughout the year, all the records your business needs will be there, ready to use, and will help make sure you either don’t pay too much or too little tax, or that the refund you’re entitled to is in the bag.

Broadly, there are a few main categories you should keep in mind for record keeping:
  • income and payments you receive
  • expenses and out-goings
  • employee details
  • tax matters, including prior year records, advice from lawyers and accountants and correspondence from the Tax Office.
  • operational matters, including asset registers, trading stock movement records, rental and lease paperwork and bank records.

And if you’re not sure whether to keep a certain record or not, keep it anyway. Better safe than sorry, and you can decide at tax time if it’s still worth keeping.

Separate business from personal
For starters, keep the records for your business and personal expenses separate. You’ll need to know what qualifies as legitimate business expenses and what doesn’t. You will probably be better off having a separate bank account for your business, and if using a credit card, get a separate one in the name of the business.

Insist on receipts or invoices for everything possible, and keep these in files along with bank statements. If you’re using vehicles in the business, get on top of the records you need for that, such as kilometres travelled, logbook and so on (see car expenses).

Keep all your business records together and in one place. In most cases, you’ll need to keep these for five years, but some for longer (like assets records for capital gains tax matters), so make sure you’re organised – if you need to prove anything or go back to the files for some reason, like if the Tax Office selects you for an audit, you need to put your hand on your records easily.

And it's not all stick and no carrot – your business itself will benefit from a bit of record-keeping discipline. As well as the owners and managers having a better picture of the health of the business through all this information, you will also be better able to demonstrate your financial position to banks and other lenders, or potential investors and other funding sources if necessary.

Here is a Tax Office video on keeping good records.

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