By Irene Chong
Don't be put off by the technical jargon - bookkeeping is the language of what's going on financially with your business.
Business owners often think that getting on top of bookkeeping is like learning to speak the obscure language of a distant hill tribe. But don't be put off by the technical jargon - bookkeeping tells you what's going on with your business financially, so it's a language well worth mastering.
Getting your bookkeeping right can help you track how the business, or a product or service, is performing and also provide you with a heap of useful information.
But bookkeeping isn't just about your business results. It can also impact on your everyday business transactions, including some areas you might expect and others you might not.
Here are some essential basics:
Why is it important for tax?
Tax is a real cash cost to your business, so it pays to get it right. Accurate information will ensure that you pay the right amount of tax.
Keeping accurate records of your income and expenses forms the basis of calculating the amount of income tax to pay. Similarly, payroll tax is calculated based on records of your salary and wage expenses, and GST is calculated based on your gross sales and the amount of GST credit you can claim on business purchases. So, the more accurate your books are, the more accurate your tax payments should be.
Banks, suppliers and customers
If you have ever tried to get a business loan, you would have been asked for some financial records. Banks need to know that they are lending to a business that has the capacity to repay them. What will be important to them is seeing that the business has positive cash flow.
Similarly, your suppliers may ask to see some financial information - again, to ensure that your business has the track record and ability to pay for supplies that you order.
You might not expect a customer to request financial records, but some prefer to check that they are dealing with a financially sound business that won't shut down as soon as an order has been placed and a deposit put down.
Good books will help you do good business with your business partners.
It's the law
Keeping business records isn't a matter of personal choice, it's also a legal requirement for most businesses. It's a good idea to keep business records for at least five years after they are prepared or obtained.
It may sounds like a mundane task, but get on top of your bookkeeping and the information can be used as a tool to boost your business.
*This article contains general information only, and does not constitute legal advice, and you agree not to rely on this article in any way.