Aug 3, 20233 min read

Financial Record Keeping - getting it right!

FACT: Whether you’re a small business, contractor, or self-employed, you need to hold on to tax records — for at least seven years, — so you can pass them to Inland Revenue if are audited.

Record Keeping Checklist

You may decide to do your business accounts yourself or delegate the task. Either way, it is your responsibility to know what records you need to keep. These may include:

invoices
receipts
wage books
petty cash
banking records
vehicle log books
asset registers and depreciation schedules
Emails, such as arranging business meetings — especially if you're claiming travel expenses to another city or overseas.

If are GST registered you also need to have tax invoices for your expenses so you can claim back the GST. You don’t need a tax invoice for income and expenses under $50. You must keep records that will support an expense claim.

Keep copies of all communication and what you send to Inland Revenue. Using MyIR makes this easy. Keep any calculations you have done to fill in your tax return, eg when working out what to claim for your home office.

Check below for records you need to keep if you employ staff, use a cash resister, offer fringe benefits, keep stock, use accounting software, use a home office or use a private vehicle for business click here.

The benefits of good record keeping

If are going to make a success of running your business, you need to keep clear accurate records. There are legal reasons as well as good business reasons to do this.

Making Tax Compliance Easier

➤ Reduce your tax bill

You can claim business expenses against your income, reducing your tax bill. If the IRD audit you, good records will support your expense claims.

➤ Complete returns more easily

Keeping your records up to date makes it easier to file your GST and income tax returns and also meet your employer obligations (if you're an employer).

➤ Avoid penalties

Accurate records let you complete your tax calculations faster and more accurately, avoiding any possible penalties for incorrect returns and underpaid taxes.

Managing Your Business Better

➤ Better control of your business

Good records show you if your business is making enough money to meet its expenses and make a profit. They show what you are spending money on and where this money is coming from - helping you in budgeting and decision making.

➤ Better business decisions

Regularly updating your records lets you identify any problems and make timely corrections. Waiting till the end of the year to find out if your business is making (or losing) money, may be too late.

➤ Managing your cash flow

By regularly updating your records you can keep a track of the flow of money in and out of your business to manage your outgoings. You can plan for periods of low cash flow, eg, a seasonal downturn, and identify the right times to buy business assets.

➤ Lower your accounting costs

If your records are in good order, your agent or accountant will need to spend less time preparing your accounts - time you are paying for. You'll be able to use their services for more specialised tax and financial advice instead.

Increasing Your Investing Opportunities

Good record keeping makes it easier to see if your business or project is worth investing in.

➤ Loans & Grants: It is also much easier to put a good case together when applying for loans or grants if you have got accurate records to support your plans.

➤ Lenders: Keeping accurate records shows potential lenders evidence that your business is being run professionally, making it a better prospect for investment.

➤ Selling the business: This is also true if you're thinking of selling the business. Potential buyers can check your performance by looking at your financial records. They will know that it's much easier to take over a well-organised and profitable business if you have your records accurate, updated, and in place.