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Keeping the books for your own business can seem very hard, especially if you are just starting out. If you do your books right from the start, you won’t have any surprises later. Learn about your money cycle.
In New Zealand, starting a small business is an exciting adventure full of possibilities and the chance to make your dreams come true. Despite the passion and drive, however, one important task is often overlooked: bookkeeping.
Keeping accurate books is an important part of running a business. It helps you keep track of your money, makes sure you pay your taxes, and shows you how your business is doing financially.
Think of bookkeeping as keeping careful records of all the money that comes in and out of your business. It’s not enough to just keep track of your income and expenses; you need to get a clear picture of your finances so you can figure out how profitable you are, how to best manage your cash flow, and how to file your New Zealand taxes.
If you don’t do your bookkeeping or do it wrong, it can cause a lot of problems, such as wrong financial reports, missing tax deadlines (and the penalties that come with them from the Inland Revenue Department – IRD), bad cash flow management, and not being able to make strategic decisions based on accurate data.
What Is Small Business Bookkeeping? and why it’s essential?
It’s important to know what bookkeeping is before you buy complicated software or hire a professional. For a business, bookkeeping means keeping track of all the money it makes and spends.
Once you begin a new business, keeping the books may be one of the last things on your mind. However, it is one of the most important things you need to do.
As your business grows, your income and costs will change all the time. That’s why you need a method, system, or accountant to keep your books balanced and your business in the black.
Small business bookkeeping means keeping track of your money from month to month, recording all the important numbers like income and expenses, and filing your taxes on time every year.
It’s important to balance your books so that you can accurately predict how much money will come in and go out. This lets you plan ahead and make smart decisions.
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Why Bookkeeping Matters for New Zealand Small Businesses? essential things to know!
Recording and organising all financial transactions in a planned way is what bookkeeping is all about. This includes everything from sales and expenses to payroll and tax payments.
In New Zealand, keeping accurate books is not only the right thing to do, it’s the law. Businesses must keep financial records for at least seven years, such as bank statements, invoices, receipts, and other papers.
If you don’t follow the rules, you could face expensive fines or penalties during an audit. In addition to meeting legal requirements, bookkeeping gives you important information about your cash flow, profitability, and areas where you can improve.
This information helps you make decisions that will help your business grow.
When it comes to small businesses, where resources are often limited, keeping good books can mean the difference between doing well and failing. The Bureau of Labour Statistics says that about 20% of new businesses fail in their first year.
This is usually because they don’t know how to handle their cash flow well. This won’t happen if you keep good records. You’ll know where your money is going and how to plan for the future.
Here are some tips you can use right away to make bookkeeping easier and more useful for your small business in New Zealand.
Certain bookkeeping needs to be met before you can start your SB (small business)
The rules in New Zealand are different from those in other countries. The way you record transactions in your financial statements must use the double-entry method and accrual accounting principles. Small businesses must also keep records in English or Māori, unless they have written permission to do so in a different language.
Small and medium-sized businesses are still a long way from fully meeting the XRB standards. In spite of that, they have to make special financial reports for people like the Inland Revenue Department.
You might not need formal financial statements if your business didn’t make or spend more than NZD 51,168.31 in the income year and wasn’t part of a company group. You still need to keep tax records to figure out your taxable income, expenses, and, if you’re registered, GST.
These basic skills will help you follow the rules and make tax time less stressful. Up-to-date data analysis of your company’s finances helps you make better decisions all year long.
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Important financial records you need to keep.
New Zealand’s small businesses have to keep detailed records for at least seven years. These important papers include:
- Statements of finances (balance sheet, profit and loss statement)
- Records of sales and income (bills, receipts, and bank statements)
- Payment history and proof of purchase.
- Tax records, such as GST returns if you are registered
- Records of assets and debts.
Companies must keep extra records, such as minutes of board meetings, written communications with shareholders, and a share register that shows who owns each share. These records should be easy to find and can be checked properly when needed.
Separate Business and Personal Finances.
A big mistake that many small business owners make is combining their personal and business funds. This could lead to confusion and make it harder to keep track of money coming in and going out of the business.
Set up a separate bank account for your business and only use it for business transactions. Not only does this make keeping the books easier, but it also makes it easier to make tax returns and financial statements.
Tax authorities also think it’s very important to keep this separation. It’s hard to be sure that business expenses are real when personal and business finances are mixed up.
This can cause problems during tax audits or when claiming deductions. When you use a separate account for your business, you leave a clear audit trail that helps with accountability and following Inland Revenue’s rules.
Separate accounts also help you understand how well your business is doing financially. You can easily see how much money your business is making, keep track of its costs, and spot problems or trends early on.
You can make better decisions and plan for growth now that you have a clear picture of your finances.
To go one step further, you might want to use a business credit card for all of your business-related purchases. This gives you even more information and makes it easier to keep track of expenses and balance your books.
Basic Conecpet to Understand and Manage GST (Goods and Services Tax)
Many small businesses in New Zealand need to understand and handle the Goods and Services Tax (GST). You are part of the GST system if your annual turnover is more than NZD 60,000 or if you choose to register.
This means that most of the things you sell will need to have 15% GST added to them.
Importantly, registering for GST lets you get back the GST you paid on certain business-related purchases. The “output tax” you get from your customers can be balanced out by this “input tax.” After a while, you’ll send GST returns to the IRD and report the difference.
It is very important to keep very detailed records of all GST-related transactions, including purchases and sales. The GST amount must be clearly shown on your invoices.
Using accounting software that has GST tracking features can make this process a lot easier. It can also help make sure that you report correctly and follow IRD rules, which can help you avoid possible fines.
Starting up regular and weekly routines.
Your money stays in order if you keep good records. The things you should do every day are:
- Keeping track of all sales and deals.
- Scanning receipts and keeping them.
- Looking at the cash flow.
Tasks for each week are just as important:
- comparing your bank statements to the records you have.
- taking care of accounts payable and receivable.
- Putting expenses in the right categories.
Bank reconciliation is one of the most important parts of your weekly accounting tasks. You can find problems early with its help. You’ll find mistakes or transactions that aren’t supposed to happen before they get worse.
If you follow these steps, your accounting system will show correct and up-to-date data. For the whole year, this helps you make good business choices.
Final Words!
A key part of running a successful small business in New Zealand is keeping accurate books. You can keep accurate records and make smart decisions if you keep your personal and business finances separate, use cloud-based software, know your tax obligations, and stay organised.
You can focus on growing your business while keeping your finances in order by doing things like regular reconciliation, planning your taxes ahead of time, and hiring professionals when you need to.
Start using these tips right away, and if you need help with something complicated, don’t be afraid to ask for it. If you do your books the right way, you’ll not only meet IRD requirements, but you’ll also learn how to do well in New Zealand’s tough business world.
Talk to a certified book-keeper or look at resources from the NZQBA or Xero’s advisor network for personalised help. Smart bookkeeping is the first step to a profitable future for your business. Take charge now!
