Accounting systems are not just designed to report your taxation obligations. They also provide you with information for planning, budgeting, stock control and comparing predicted financial outcomes with actual performance. Assess how informative your current record keeping system is.
If your accounting system is inadequate, the first step in improving your financial management is to look at alternative systems. The best accounting records system for your business depends largely on the type and size of your business, the number of staff you employ, and who does the accounting.
The Australian Tax Office (ATO) released a small business accounting/business records package called E-Record, which is designed to help small businesses keep records and comply with GST record-keeping obligations. The package, which is available on a CD-ROM, is a very good start to preparing your business accounts and records. However, most businesses need a more sophisticated record keeping system.
Whatever the system you choose it must record data accurately and provide data to produce your accounting information.
It is recommended that your accounting software should have the following operating characteristics at the very least:
All money, including petty cash, goes in and out of the business, through the bank account
The system should leave a clear “paper trail” from the source documents to the final summaries
It should clearly define the who, what, when and where of your accounts
It should be as simple as possible while still being able of giving you a comprehensive picture of your business
It should keep your business and private finances separate.
Checklist to evaluate your accounting needs
The following checklist will help you evaluate your current accounting records management system to see if it is suitable to your needs. Once you have undertaken the test, you may need to make some changes. Evaluate your answers in each of the key areas and give your response.
Does your current system record:
|The current financial position of the business||Yes/No|
|The amount and age (days, months) of your debtors||Yes/No|
|The amount and age (days, months) of your creditors (money you owe?)||Yes/No|
|The value of stock on hand||Yes/No|
|The progress of jobs (How many, status, cost per jobs etc).||Yes/No|
|A breakdown of jobs by time, materials, etc.||Yes/No|
|The productivity of staff (charged hours/employee wage hours?)||Yes/No|
The exact information needs of a business will vary. If you answered “no” to any of the above questions, you should consider upgrading your system if the question is relevant to your business.
Review the systems you currently have in place and decide whether the basic objectives outlined above are being satisfied. If not, you will need to make changes. Consider your options and implement the changes as required. If you are unsure, or would like assistance, your accountant or a management consultant can assist.
Having full and correct information is the best scenario for most businesses. This should be available daily, if not monthly.
What accounting records do you need?
The information you require depends on your obligations as well as your ‘need to know’. As your business grows, your information demands will increase.
Choose an accounting system that suits your needs, and should include the following:
|Cash Receipts||Payroll, Time Sheets||Wages Summary||Stocktake/|
|Debtor Receipts||PAYG Withholding amounts||Accounting Reports||Payment Summary|
|Invoicing||Debtors’ Controls||BAS, if report quarterly||Stocktakes|
|Cash Register Amount||Cash Receipts||Budget|
|Petty Cash Books||BankReconciliation||Profit and loss Reports|
|Daily Bank Balance||Creditors List|
|Wages/Hours (payroll)||Petty Cash|
The level of sophistication of your accounting systems will be a function of your size, turnover, experience of staff and the management expertise. If most or all of the above criteria are being met, your accounting records are suiting your needs.
As your business grows, at some stage you will have to decide whether you can justify employing a full or part-time bookkeeper or utilise an outside accounting service rather than keeping all the records yourself.
Look at your existing resources and decide whether a greater level of expertise is required for the office.
For most businesses, once the number of employees grows say, beyond 10, it may be no longer practical or feasible to ‘do the books’ yourself. Your time is better spent running the business.