A few days ago we talked about the basic business records, those required by the ATO and other regulations.   These are all the bits of paper need to be put into the computer system - all the computer does is summarise the data into a simpler way of storing and presenting the detail.

Business systems allow you to maximise the value of your time and create reports to guide, manage and monitor, and control the business even if you are not there.   The financial system is just one of these key systems.

Cash Book

This is the starting point for all financial information.   The 'old way' was to keep a multi-column record of moneys received and moneys paid out in one book, the 'Cash Book'.   Add the columns up, make sure the total across was equal to the sum of the payments made and that the payments were ticked off on the bank statements.   Then the accountant entered the cash book into the general ledger and produced the financial statements and tax returns.   Now largely bypassed as a process, too much time, fiddly work – but some owners still use Excel (you enter up, it adds), or Cash Manager (much the same detail but formulas too, really configured to do BAS but reasonably easy to post to a ledger for year end figures).

Computerising financial records

These can save a business a lot of time, allowing a business to enter, add, delete, amend, share, calculate, total, produce payroll and BAS, communicate online, invoice and pay, etc.   The system is as good as you allow it to be; enter wrongly (garbage in garbage out), enter only some of the necessary information or steps, use a bookkeeper who really doesn't understand the business or what is to be obtained from the reports or just 'does the GST' and ……... (select a consequence here!)

Preparing financial reports

The 'system' must enable the production of regular and relevant reports, including BAS, Payment of Suppliers, Accounts Receivable, Profit & Loss, Balance Sheet, Budgets, Compare Actual/Budget, Exception reports, Trading and Job records.

Choosing accounting software

Accounting packages have become much better, names like Intuit/Quick Books, MYOB, Xero, Sage and Saasu.   With earlier systems you paid a lot for the program, the manuals were pretty difficult to follow, you paid more each year for updates.   The 'Cloud' allows you to use any of these programs for a low fee every month, about $50.   Our favourite is Xero – easy to set up and use, an authorised user can access from anywhere, a good range of add-ons for other applications (like job cost, point of sale, report formats, etc), and they spend money on useful improvements.   Most users seem to like using this system.

In-house or Out-source?

Many owners do their own books, spending hours on something they hate and at which they are not very good.   While they are doing this they are not finding customers, building relationships, or making sales; however, they have saved a little money.   Then, the accountant has to fix the errors, and answer the question 'but I've done the books'.   Or, the owner engages a bookkeeper who moves a lot of paper around, gets some things pretty right, a few miss the really important stuff (have you ever looked at your 'Loan Account'?), don't know much about tax, and often provide a commodity service at a premium rate.   Then, the accountant has to find and fix the errors, and answer the question 'but the bookkeeper did the books'.   The message is; whoever does the work, make sure it is properly done – if you penny-pinch or mismanage here it could cost you a lot more down the track, either in fix-up costs or even extra tax paid.

This is not a rant about bookkeepers; there are some good ones but there are also a lot who are guilty of infringing trade practices by using the name.

Benefits of good record-keeping

It is a combination of knowing what you want from your system, how you want to keep the records (whether it will be DIY or a bookkeeper or an accountant) and your budget.   Once that is settled, the benefits are:

- clearly, your peace of mind

- run your business more profitably and be more in control

- produce accurate reports on time

- better monitoring of all aspects of the business

- reduce costs of keeping the books and preparing year end financial reports and tax returns (our focus is on helping you achieve a more profitable business and the best tax outcome – not just the cheapest result)

- have meaningful financials for borrowing, bank applications, etc.