BUSINESS INFORMATION
Financial processes and procedures
To ensure the sustainability of your business, it is essential to establish systems and procedures that monitor financial health and fulfil tax obligations. A critical component of business management involves implementing robust financial practices to track performance and comply with tax requirements. Seeking guidance from an accountant, financial expert, or business advisor can be beneficial in this process.
An important part of running a business is establishing good financial procedures and systems to monitor the financial health of your business and ensure you meet your tax obligations.
You might want to seek help from an accountant, financial professional or business adviser.
Setting up a business bank account
It is recommended to open a dedicated bank account for your business to separate personal and business finances. This simplifies tracking income and expenses and streamlines the preparation of financial records for tax purposes. For companies, partnerships, or trusts, a separate account is mandatory for tax compliance. While sole traders are not legally required to open a business account, it is still advisable. If you operate under a registered business name, you will need to provide proof of registration to the bank to open an account in that name.
Creating a budget
Developing a realistic budget is crucial for achieving your business’s financial objectives. A budget provides insight into your current financial position and enables you to make informed projections. By comparing actual results with forecasts, you can identify areas of overspending or additional income generation.
Find out more information about budgets and forecasts.
Establishing an accounting system
Accounting, or bookkeeping, involves documenting a business’s financial transactions. Accurate record-keeping supports applications for financing, evaluation of business performance, efficient management, and compliance with tax obligations. Legally, businesses are required to keep detailed records of income, GST, employee payments, superannuation, fringe benefits tax, fuel tax credits, and business expenses for tax compliance.
There are two main accounting methods: cash and accrual. The cash-based method records transactions only when cash is received or paid, irrespective of when the sale occurs. This approach is ideal for businesses that predominantly handle cash transactions. On the other hand, the accrual-based method records transactions as they occur, regardless of when payment is made or received. This method is more widely used.
Transactions can be recorded using either a manual or digital systems, depending on the business’s preference and needs.
A manual system involves logging entries in a ledger or notebook, which can be purchased from stationery shops or office suppliers. Digital systems utilize software or web-based applications that offer advanced features such as invoicing, receipt generation, and stock tracking. Spreadsheets can also be used for recording transactions.
Tax records must be retained for five years after they are prepared, obtained, or the transaction is completed, whichever occurs last. These records must be in English and accessible in a format approved by the ATO. For more information visit the ATO website.
Reviewing your accounts
Two key financial statements are essential for small businesses:
- Profit and Loss Statement: Tracks income, expenses, and overall profitability.
- Balance Sheet: Reports on assets, liabilities, and net equity at a given moment.
Regularly reviewing these statements each month is crucial to spotting potential issues and implementing solutions.
Learn more about reviewing your finances.
For deeper insights, consult your accountant or financial advisor, and consider participating in financial management workshops to enhance your understanding.
Managing Credit and Debt Collection
Maintaining healthy cash flow and minimizing debt exposure are fundamental to sound financial management. To handle credit effectively, establish clear policies and procedures covering:
- Terms and conditions for delivering goods or services.
- Invoicing processes and payment expectations.
These steps will help ensure smoother operations and reduce financial risks.
Find out more about providing credit to customers.
More information
- Learn more about setting up payment terms with suppliers
- Read the ATO’s summary of when to complete record keeping and reporting tasks
- Visit the ATO’s online learning platform essentials to strengthen your small business to access free short courses in record keeping and more.
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Other helpful resources
- Financial Management
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