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Keeping your accounts in order

Tuesday, December 1, 2009
Keeping your accounts in order. Image: Getty Images
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By Diana Clement
MSN NZ Money writer

To keep your stress levels low in business it's essential to keep your accounts in order.

The most important thing for any new business to do is set up record-keeping systems. When you receive paperwork of any sort, even down to petty cash receipts, have somewhere to file it. Diary dates when you need to complete paperwork or tax returns and allocate a time each month for reconciling bank accounts and dealing with other paperwork.

Many small businesses keep a written cashbook. It can make a lot of sense to use accounting software, which automates the process.

If you use one of the more common packages, such as MYOB or Xero, you'll be able to outsource the actual work fairly easily to a bookkeeper, which is very cost-effective. In the case of MYOB, you can simply email the file to your accountant at the end of the year — which saves a lot of work. With online-based Xero, your accountant and/or bookkeeper can log in if you let them then finalise your accounts online. Even keeping your accounts in an Excel spreadsheet can help your accountant.

For a small businesses owner it can be very tempting to do your own accounts. An accountant or lawyer who is aware of the area in which you are operating will pay for their fees by utilising their specialist knowledge. What's more, the Inland Revenue allows them to file returns long after you as an individual can — giving the investor extra breathing space.

There are a number of worries if you don't keep your accounts in order. They include:

  • The Inland Revenue Department (IRD), which can fine you heavily and charge penalty interest if it's found that your returns or the payments you're making are incorrect — even if you have simply "lacked reasonable care". What's worse is you can be audited — which will cost you an arm and a leg in accounting and possibly legal fees. Many a small business owner has been driven to the wall by the IRD and it's well worth watching the Kiwi film We're Here To Help — even if it's just to be entertained, watching one man take on the tax department.

  • Failing to understand your business's strengths and weaknesses. If you have financial information at your fingertips that shows which are your best and worst customers and how your costs stack up, you can move the business in the right direction.

  • Not spotting trends before it's too late. It's easy to see the money coming in, but fail to realise your cashflow is in dire straits.

  • Not claiming deductions. It's a really good idea to keep receipts for every last cent you spend — even coffees with a former colleague if you discuss business, and a log book for your car. Doing this can improve your post-tax cash flow by thousands of dollars a year.

Finally, always double-check your tax returns before they are sent off to Inland Revenue. Even if you hire a tax agent to fill out returns for you, make sure you sight them to ensure mistakes haven't been made. Taxpayers are ultimately responsible for the tax shortfall if an inaccurate return is filed, not the tax agent.

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