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| − | At the core of every responsible tax planning is good bookkeeping practices. I would even go as far as saying the majority of the field of accounting relies on fastidious bookkeeping. For those working as a sole trader or small business owners, the alternative is to rely on the help of tax services, which can be costly. Additionally, not everyone is comfortable with the idea of opening their books to other people.
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| − | For those people, an understanding on the best practices related to bookkeeping is necessary. Luckily, bookkeeping isn’t a particularly tough subject and more often than not having an eye for detail or failing that, sheer diligence, would generally be sufficient. Still, bookkeeping can be tedious and without proper organization, it can end up being a mess as more and more money flows in and out. To help get you started, here are 4 basic bookkeeping tips to assist you in your record keeping.
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| − | ==A proper understanding of accounting==
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| − | First things first, you have to familiarize yourself with the basics of accounting itself. Generally, accounting can be divided into 4 main categories; income, expenses, inventory and liabilities. While income and expenses might seem straightforward, there are several categories that you need to understand as well. For income, there are cash sales and credit sales while for expenses, there are recurring and non-recurring expenses.
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| − | A cash sale is the one we’re all familiar with, in which the sale and payment occurs at the same time. When you’re out buying lunch, getting a haircut or when you’re getting a pair of jacket, this is considered a cash sale even if you’re paying with a credit card. A credit sale is when the sale and payment occurs at different times, with the payment coming at a later date. Anything that involves an invoice, in which the seller specifies the maximum number of days for the buyer to make their payment, is considered credit sales.
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| − | Inventory usually has to do with businesses that deal in physical goods. It revolves around the tracking of purchased goods, the number of goods in stock and the restocking of said goods. Last but not least are liabilities. Liabilities are essentially things that you still have to pay for even if you were to go out of businesses. Building lease and/or assets that you still haven’t paid off in full are an example of liabilities.
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| − | ==Organizing your records==
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| − | Once you’re up to speed with the basics of accounting, it’s time to organize your records using the definition above and a specific period of time. For example, every cash sales you’ve had in July would be placed in one folder while every recurring expense you’ve paid in August would be placed in another. There are other numerous categorizations you could use, such as grouping employee’s compensation together so find one that suits you the best.
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| − | When it comes to record-keeping, it’s up to you to keep these records physically, digitally, using cloud-based software or any combination of all three. I’d recommend at least using two to keep your bases covered. It’s always a good idea to keep a backup of everything.
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| − | ==Separate your business and personal accounts==
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| − | It is never a good idea to mix business with pleasure, especially when there’s money involved. This is especially important for sole traders as they’re especially prone to make these mistakes. Always have at least two separate accounts for your personal and business use. That means not paying for your groceries with your business account and to always require clients to make payments to your business account.
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| − | ==Set aside money for taxes and major and/or emergency expenses==
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| − | To make this easier, consider using pay as you go (PAYG) installment system when dealing with your taxes. This way, you’re allowed to make smaller payments each quarter instead of making one huge payment at the end of your financial year. Doing it this way would make budgeting considerably easier since you only have to consider 3 months worth of tax instead of the whole year.
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| − | Alternatively, you also have to consider setting aside some money to prepare for major expenses. It could be for an expansion you’ve got planned in the future or to prepare for emergencies. If by analyzing your cash flow you’re seeing that your business is still operating from paycheck to paycheck, i.e. your revenue is just enough to cover your expenses, try to find ways where it is possible for you to cut your expenses.
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| − | ==Bookkeeping’s best practices==
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| − | When all is said and done, bookkeeping isn’t exactly complicated. As long as you employ some actual common sense, getting on top of your bookkeeping shouldn’t be too difficult. Of course, the reality is that humans are an irrational and impulsive creature, which is why it can sometimes be difficult for businesses to properly handle their accounting. In times like these, getting the help of a financial advisor or at least a second-in-command could help you in avoiding the usual mistakes.
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| − | ==Sources==
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| − | * [https://www.parisfinancial.com.au/small-business-tax-services/ Small Business Tax]
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| − | * [https://www.parisfinancial.com.au/small-business-tax-services/startup-business/ Tax Services]
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| − | * [https://www.parisfinancial.com.au/who-we-are/experience-counts/ Tax Professional]
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