One of the main reasons some businesses fail is because they don’t have a good accounting system. With the right bookkeeping, you’ll get enough warning if your business looks like it’s running out of cash.
Your accounting can be done by:
- accounting books (manually)
- accounting software
Accounting software is the most effective choice, unless you want to familiarize yourself with accounting practices.
Consider your business needs
Different companies will have different needs from their accounting software. When choosing accounting software, consider the following questions:
- Does the system calculate all payroll requirements (eg, payroll deductions, annual leave, and seniority leave)?
- Does the system track inventory, work in progress, orders, jobs, and other task management requirements?
- Will the system be able to manage multiple bank accounts?
- Should the system handle foreign currencies?
- Does the system track separate financial records for each company or department within the company?
- Does the system interface with other IT systems such as online payments?
- Does the system keep detailed records about customers, including what they buy, how often they buy, and when they buy (often called a customer relationship management system)?
Free or paid software options
There are many software packages on the market that allow business owners to successfully control records without an accounting degree. Some of them are free, like the free accounting software.
Some common accounting systems used by small businesses are:
One Touch Payroll Software
As of July 1, 2019, companies with less than 19 employees are required to report tax and pension information directly to the ATO (larger employers with 20 or more employees started reporting earlier). This is known as Single Touch Payroll (STP).
If you already use accounting software, STP reporting should be integrated.
The ATO’s software solutions page can help you find software products that enable STP reporting, including low-cost options for micro-employers.
Obtain professional advice
If you are unsure which software to choose, talk to your accountant or sales consultant. Make sure the package contains the standard activity report forms needed to report to the ATO, such as BAS statements.
Implementation of an accounting system
When you set up your financial records, you need to make sure they are GST and other tax compliant.
This is done by setting up classifications, also called chart of accounts. A chart of accounts is a list of all the accounts needed to cover the financial transactions of the business. Classifications separate profit and loss calculations to show where a business is making or losing money. It is also used to determine the overall financial position of a business in a balance sheet.
How to set up a chart of accounts
The chart of accounts is important to show the efficiency and accuracy of your accounting.
When setting up a chart of accounts, you will need to:
- Define the accounts to be used in the business, such as the different categories of assets, liabilities, expenses, and sales revenue.
- List these accounts according to the financial classifications as shown above – each different account type for assets, liabilities, sales revenue and expenses.
- Assign a numbering system to each account in the chart of accounts. For example, all asset accounts will be categorized as 1000, and all liability accounts will be categorized as 2000.
- Allocate various sub-accounts under these main accounts.
- Determine if each sub-account needs additional sub-accounts – this will depend on the level of information you need.
Accounting packages have a predefined chart of accounts that you can assign to your own financial transactions. You can also use our sample chart of accounts as a reference.