Do I have to keep formal financial records?
Great question, asked by Rachael, thank you.
As you know in my work with Business StartUps; people who are starting their own business or thinking about starting their own business, people ask a lot of questions about The Numbers.
Understanding The Numbers is often the trickiest part of getting started. What Numbers are important? How much to charge? How to know if you are charging enough? How do I calculate my profit? What is GST and how does it work? Do I have to pay tax? Do I have to keep proper financial records? Answers to each question leads to even more questions. Please feel free to email me your questions and I will include the answers in future editions of StartUp Insights.
Today, I just want to answer this question:
Do I have to keep formal financial records?
The simple answer is “Yes, you do”
As a business owner I would think that you would want to as much as have to. You want to know that your business is making money, that you are generating profit and your business is growing.
Depending on the size of your business and the number of transaction you may find that some thing simple is sufficient. An accounts book where you write down the sales and the expenses and just add them up at the end of the week, or month. I always prefer weekly so that I know what is going on. In fact there was a time when I was working as an accountant that we knew almost hourly just how much money we were making. Certainly when I have work with established businesses I encourage business owners to look at the profit and loss weekly, or at least fortnightly.
The reason monthly can be an issue, is that a month is actually a long time in business. If for some reason you are not charging enough, or your expenses have increased and your margin decreases, you want to know about this before it becomes a profit issue and a cash flow issue.
So the first part of the answer is that you want to keep formal financial records.
The second part of the answer is that as a business owner you do have responsibility to follow the rules as laid out by the regulating authority in you country; in Australia it is the ATO, in the US it is Inland Revenue. You will be expected to submit tax returns for your business and depending on the legal structure of your business, the level of compliance will be different. In Australia as a Sole Trader with an ABN your business income and expenses are added together with any PAYG income you have earned. If you are an incorporated legal entity then your company will submit its own tax return and you as an individual will submit your individual tax return. If in any doubt, always check with your accountant regarding your personal situation.
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I’m Ingrid Thompson and thank you for reading this post.
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