There are many benefits to keeping good records. It can help you to:
- Keep track of your business’ health, so you’re able to make good business decisions.
- Meet your tax and superannuation obligations.
- Manage your cash flow.
- Demonstrate your financial position to banks or other lenders.
In terms of Tax and Superannuation, all these records must be kept but are dependent on the obligations of your business.
It is required by the Australian Taxation Office that:
- Your records are not changed and are stored in a way that restricts the information from being changed or damaged.
- You keep most records for five years, starting from when you prepared or obtained the records, or completed the transactions (or acts they relate to)—whichever is later.
- You show the ATO your records if they request them.
- Your records are in English or able to be easily converted to English.
Records can be stored electronically or in paper form, however the ATO recommends that businesses use electronic record keeping if possible.
If keeping records electronically, the devices the records are saved on must allow you to:
- Have complete access
- Control the information that is processed, entered and sent
- Back the records up in case of computer failure
How Long Should Records be Kept?
Records should be kept for five years, and this time starts from when you have prepared or obtained the records or completed any transactions. In comparison, the Australian Securities & Investment Commission (ASIC) requires records to be kept for seven years.
If you operate as a sole trader, the ATO has a useful application that can be used to record your business income, expenses and vehicle trips. You can download the app here.
Choosing a bookkeeping system is important and deciding on whether to use a manual or electronic system should be based on what suits you and your business, to allow for ease of record keeping.