Recordkeeping is one of the most vital tasks in growing a business. These records will provide data for owners and managers to analyze profitability and the financial status of the business. Updating and organizing the business finances let you clearly see how the business is progressing and will allow you to have a good relationship with clients and avoid debts and lawsuits.
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The accounting and tax records can get complicated when not handled properly. Fortunately, tools such as Quickbooks and Xero help keep track of money matters faster instead of doing it manually. However, these programs require users to at least have a basic accounting knowledge. You can also always use a spreadsheet, like Microsoft Excel or Google Sheets, and do all your accounting tasks there.
Below, we list down the importance of updated accounting information and the tips you can follow to be on top of your business finances.
Significance of Having Updated Accounting Records
Each financial statement informs the potential clients, investors, and creditors about how the company performs financially. It is used to interpret what to expect in the future.
Overview of Financial Conditions
Monitoring your business finances is crucial because investors and clients look into that before transacting. Transparency in accounts provides security for them. In addition, they also want to know where your funds are coming from. An updated financial report should state the company’s assets and investments. Moreover, debt and equity components must also be there as well.
Statement of Results from Operation
The financial conditions only show figures like assets, debts, and investments. However, they generally don’t reveal the events during the operation that lead to the modification of financial conditions. A clear financial statement details the operating results like the profits, sales, expenses, and even losses.
- Determining How Cash Flows
Income statements may reflect non-cash elements, which does not disclose the information on the business cash exchange. Cash inflows and outflows can also occur outside operations in the form of investments. Expect that investors are looking to gain a big payback from it. Cash flow statements are important because they show the company’s interaction financially with the outside world.
Current Status of Shareholders’ Equity
Equity investors need to know the changes in equity components, particularly the retained earning over time. The shareholder’s equity results from subtracting the total liabilities from the company’s total assets. It also indicates the net worth of the company.
How to Keep Financial Statements Updated
An efficient money management system is the key to a successful business. Maintaining the organization and update of all financial matters can save you a lot of time and energy. Here is a guideline on how you can do it efficiently:
Separate Your Personal Account from Bank Accounts of the Business
In this way, there will be clarity in terms of tax-deductible expenses. Make sure that you have the overdraft and savings account separate from your own accounts. This will keep the transactions or VAT charges from the main account you use. It is necessary for a smooth transaction and will help prevent against being taxed in the wrong account.
Arrange and Organize Documents Systematically
Once you start a business, look forward to receiving documents with different purposes. Keep all those in case you need them as a reference and information source in the future. Some small business owners hold their documents everywhere, especially in the car, kitchen or under the seats. This is not ideal; instead, you must have a well-organized process of storing files, either physically or digitally.
This will reduce the number of mistakes in the future. Furthermore, you can easily get the documents you need at the moment they’re needed. Always have a backup if possible.
Keep All the Receipts From Any Business Transactions
Tracking all the expenses related to work, including business meals as well as office space utilities and supplies is the best method to be tax-efficient. Seek an accountant if you want to know more about what expenses you can claim. You can even store these receipts digitally for a more convenient recording. Furthermore, keep the bank statements, cash books and wage books within a minimum of six years.
Organize the Balance Sheet
If you want to know how much your business progresses, you need to settle everything on the balance sheet. List down all that you own (assets), the amount of your debt (liabilities), and what your business values (equity).
Also, separate the accounts payable from accounts receivable. The accounts receivable system lets you trace if your customers have already paid and how many unpaid transactions are late. This will allow you to maintain a smooth cash flow. Update this report monthly and make sure that you pay your suppliers on time.
- Have an End of Financial Year (EOFY) Audit
This is an important event for small business owners because of the completion of bookkeeping duties, tax returns and the start of financial planning for the next year. Here are the essential tasks in EOFY Audit:
Organizing Records and Compliance
The annual responsibilities include summarizing the statement of profit and loss, completing income tax returns, summarizing the list of debtors and creditors, and lodging reports and returns for taxes.
Determining the Tax Deductions you can Claim
Find out what tax deductions you can claim. You may be able to do that if your small business has a website, has travel expenses, and a motor vehicle that uses diesel fuel. Check if tax deductions are claimable if your business is based from home and uses machinery, tools or computers.
Identifying Any Tax Changes For the Next Financial Year
You must confirm if there are any expected tax changes for the next financial year. These include tax breaks and deductions for small business.
Check the Status of your Finances and If you Reach the Targeted Business Goals
Assess whether you have accomplished your plans. Check if your strategies are working and if your business is adapting to new changes in the environment. It’s also the perfect time to review if your business structure still fits. Over time, your business will grow and expand so it’s only appropriate to have some changes along the way.
Always remember that the financial reports must be detailed and comprehensive. In that way, it will save you a lot of time, effort, and money. It is also vital to know how much the business develops and to be aware of your tax claims and federal duties.
If you have troubles with keeping your accounting and business finances up to date even after implementing the tips in this article, you may ask for help from professional accountancy firm in your area.
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