So you have determined that you are self employed and in business – great! As the owner of a business, keeping good business records is very important.
1. 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, you will need to be able to provide documentation to support your expenses. Good records will support your expenses claims.
- Complete returns more easily – keeping your records up to date makes it easier to file your GST and income tax returns and 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 from the IRD for incorrect returns and underpaid taxes.
2. 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’re 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 tax agent or accountant will need to spend less time preparing your accounts – time you are paying for. The more you can summarise your information for them the more money you will save. You’ll be able to use their services for more specialised tax and financial advice instead.
3. Increasing your funding opportunities
- Good record keeping makes it easier to see if your business or project is worth investing in. It’s also much easier to put a good case together when applying for loans or grants if you’ve got accurate records to support your plans. Keeping accurate records shows potential lenders evidence that your business is being run professionally, making it a better prospect for investment.
- This is also true if you’re thinking of selling the business. Potential buyers can check your performance by looking at your records. They’ll know that it’s much easier for them to take over a well-organised business.
The Inland Revenue Department (IRD) requires you to keep all your business records for at least seven years from the end of the tax year or the taxable period they relate to. Even after you stop operating your business you still have record keeping responsibilities.