One of the main reasons some businesses fail is because they don't have a good bookkeeping system. With the right bookkeeping, you'll receive enough warning if it looks like your business might run out of cash.
Your bookkeeping can be done in:
- accounting books (manually)
- accounting software.
Accounting software is the most efficient choice, unless you want to get familiar with bookkeeping practices.
Consider your business needs
Different businesses will have different needs from their accounting software. When choosing an accounting software consider the following questions:
- Does the system calculate all payroll requirements (for example, pay as you go withholding, annual leave and long service leave)?
- Does the system track stock, work in progress, orders, jobs and other task management requirements?
- Will the system be able to handle multiple bank accounts?
- Does the system need to handle foreign currency?
- Does the system track separate financial records for each business or department within the business?
- Does the system allow for interface with other computer systems such as online payments?
- Does the system keep detailed records on customers, including what they buy, how often they buy and when they buy (often referred to as a Customer Relationship Manager system)?
Free or paid software options
There are many software packages on the market that allow business managers to successfully control records without an accounting degree. Some of them are free, such as Free Accounting Software.
Some commonly used accounting systems used by small businesses are:
Software for Single Touch Payroll
From 1 July 2019, businesses with fewer than 19 employees are required to report tax and superannuation information directly to the ATO (larger employers with 20 or more employees began reporting requirements earlier). This is known as Single Touch Payroll (STP).
If you are already using accounting software, STP reporting should be built in.
The ATO's software solutions page can help you find software products that allow STP reporting, including low-cost options for micro employers.
Getting professional advice
If you're unsure which software to choose, talk to your accountant or business adviser. Check to make sure the package has Standard Business Reporting forms needed to report to the ATO such as BAS statements.
Setting up a bookkeeping system
When you set up your financial records, you need to make sure they comply with GST and other tax obligations.
This is done through setting up classifications, also known as a chart of accounts. A chart of accounts is a listing of all the accounts needed to cover the financial transactions of the business. Classifications separate profit and loss calculations to show where a business is making or losing money. It's also used to determine the overall financial position of a business in a balance sheet.
How to set up a chart of accounts
The chart of accounts is important to show how effective and accurate your bookkeeping is.
When setting up a chart of accounts, you'll need to:
- Define the accounts to be used in the business, such as different classes of assets, liabilities, expenses and sales revenue.
- Make a list of these accounts under the financial classifications as noted above – each different type of account for assets, liabilities, sales revenue and expenses.
- Allocate a numbering system for each account within the chart of accounts. For example, all asset accounts will be classified under the 1000 number, and all liability accounts will be classified under the 2000 number.
- Allocate various sub-accounts under these main accounts.
- Determine if each sub-account needs further sub-accounts – this will depend on the level of information you need.
Accounting packages have predefined chart of accounts that you can allocate to your own financial transactions. You can also use our example chart of accounts as a reference.