Keeping accurate records is not just a regulatory requirement; it’s a cornerstone of running a successful business. Proper records ensure your business meets tax compliance requirements, simplifies financial management, and helps you avoid costly penalties. This guide provides SME owners with practical steps to maintain effective record-keeping systems and ensure compliance with New Zealand regulations.
1. What Records Should You Keep?
Businesses in New Zealand are required to retain comprehensive financial records for at least seven years. This ensures that all necessary information is available in case of an audit or tax filing requirement. Below are the key types of records every SME should maintain:
- Income Records: This includes sales receipts, invoices, or any other proof of revenue. Whether you’re selling products or providing services, ensure every transaction is documented with proper evidence to support your income claims.
- Expense Records: Retain all receipts, invoices, and statements for business-related spending. From office supplies to large equipment purchases, having detailed expense records allows you to claim tax deductions accurately.
- Bank Records: Keep statements from your business bank account, credit card statements, and reconciliation reports. These documents provide a clear picture of your business’s cash flow and financial health.
- GST-Related Documents (if registered): If your business is GST-registered, ensure you retain tax invoices, GST return filings, and any related calculations. This ensures accurate reporting and helps avoid overpaying or underpaying GST.
- Payroll Records: Maintain records for all employee payments, including wages, deductions, and employer contributions to KiwiSaver or other schemes. Accurate payroll records are essential for meeting employment law and tax obligations.
- Asset Documentation: Keep details on assets purchased, sold, or disposed of in the business. This includes machinery, vehicles, and office equipment. These records are important for calculating depreciation and claiming tax deductions.
2. Organising Records for Accessibility
Whether you prefer physical or digital storage, organising your records is critical to ensuring they’re accessible for audits, tax filing, or general business review. Here’s how you can streamline your storage process:
- Physical Storage: Use labelled folders or filing cabinets to categorise documents by type (e.g., income, expenses, GST) or by date (e.g., monthly or annually). This traditional method works well if your business handles limited paperwork.
- Digital Storage: Digital storage offers flexibility, easier searchability, and better backup options. Scan and save all documents into organised folders on a secure computer or a reliable cloud storage service. Ensure that digital files are named clearly (e.g., “Invoice_March2025_ClientName.pdf”) for easy retrieval.
Tip: Digital storage is highly recommended as it reduces the risk of losing documents and simplifies the process of sharing records with your accountant or bookkeeper.
3. Maintain a System for Tracking Income and Expenses
Tracking income and expenses regularly is one of the most effective ways to maintain accurate financial records. Without this system, businesses may miss out on tax deductions or fail to detect areas needing financial improvement. Here’s how to stay on top of tracking:
- Income Tracking: Record each sale or payment received, regardless of the amount or payment method. This includes EFTPOS payments, bank transfers, and cash sales.
- Expense Tracking: Keep track of every business expense, from major purchases to smaller transactions like office supplies or travel expenses. Retain receipts and ensure they are categorised correctly for accurate tax deductions.
- Tools and Software: Consider using accounting software like Xero, QuickBooks, or MYOB to automate income and expense tracking. These tools also integrate with bank accounts, making reconciliation easier.
4. Stay Compliant with GST Requirements
If your business is registered for GST, compliance with GST rules is critical. Non-compliance can lead to penalties and unnecessary stress. Follow these steps to ensure you’re meeting GST requirements:
- Tax Invoices: Ensure you issue GST-compliant tax invoices for all transactions exceeding $50. These invoices must include your GST number, the total amount, and a breakdown of GST.
- Accurate Tracking: Regularly track GST paid on business expenses and GST collected on income. This ensures your GST return is accurate and complete.
- GST Returns: File your GST returns on time according to your reporting cycle (e.g., monthly, two-monthly, or six-monthly). Late submissions can result in penalties, so set reminders for due dates.
5. Separate Business and Personal Finances
Mixing personal and business finances can complicate tax filing and lead to errors in record-keeping. Avoid these challenges by:
- Opening a dedicated business bank account for all business income and expenses.
- Using separate credit cards for personal and business purchases.
- Clearly documenting any personal funds introduced into the business or withdrawals taken as owner’s drawings.
6. Record Cash Transactions Properly
Cash transactions can often go undocumented, leading to discrepancies in income reporting. Ensure every cash payment or sale is accurately recorded using:
- Daily Logbooks: Maintain a simple daily log of all cash sales and payments received.
- Receipts: Issue receipts for all cash transactions to provide proof of payment and create a clear audit trail.
7. Track Vehicle Use
For vehicles used for both personal and business purposes, maintaining a mileage log is crucial for accurately claiming expenses. Your log should include:
- Trip Date: Record the date of each trip.
- Trip Purpose: Note whether the trip was for a business meeting, client visit, or other business-related activities.
- Odometer Readings: Record the starting and ending odometer readings to calculate the distance travelled.
8. Schedule Regular Updates
Set aside time every week or month to review and update your records. Regular updates prevent errors from accumulating and ensure your records remain complete. During these sessions:
- Reconcile Bank Transactions: Match your records with bank statements to identify discrepancies.
- Fill Gaps: Record any missing income or expense details.
- Review Completeness: Double-check that all necessary records have been captured and categorised correctly.
9. Keep Only What’s Necessary
While it’s important to maintain detailed records, holding on to unnecessary documents can create clutter. Focus on keeping records directly relevant to your income, expenses, and tax obligations. Avoid storing duplicate documents unless absolutely necessary.
10. Consider Professional Assistance
If managing records feels overwhelming or if you’re unsure about compliance, don’t hesitate to seek professional help. Bookkeepers and accountants can:
- Ensure your records meet legal requirements.
- Identify opportunities for tax savings or deductions.
- Save you time and reduce stress, allowing you to focus on growing your business.
Benefits of Good Record Keeping
Effective record-keeping provides numerous advantages beyond just compliance:
- Compliance: Avoid fines or penalties from incorrect filings or missing records.
- Efficiency: Simplify tax filing processes by having all documents readily available.
- Financial Insights: Gain a clear understanding of your business’s performance and identify opportunities for growth and cost savings.
By following these best practices, SME owners can maintain accurate records, meet tax obligations, and set their businesses up for long-term financial success. Accurate records are more than a legal requirement; they’re a tool to grow and strengthen your business.
The content in this blog is intended to provide general insights and should not be regarded as professional advice. Each business situation is unique, and we recommend consulting with a professional for specific guidance. At Black Arrow Business Studio, we specialise in accounting and consulting services designed to support your business’s growth and success. Feel free to contact us for expert advice and customised solutions.
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