Bookkeeping basics and choosing accounting software
Good bookkeeping isn't about loving numbers. It's a short weekly habit that keeps you out of trouble at tax time, shows you how the business is really going, and saves you money on your accountant. Here's how to set it up.
In short
- Keep business and personal money in separate bank accounts from day one.
- Keep most business records for at least five years (companies may need longer), in a form the ATO can read.
- Use accounting software connected to your bank feed, and spend 30 minutes a week keeping it up to date.
- If you employ staff, your payroll software must support Single Touch Payroll reporting.
- Get a bookkeeper or BAS agent when the books take more than a few hours a month, or you find yourself falling behind.
Why bookkeeping matters
Bookkeeping is simply recording the money coming into and going out of your business, and keeping the paperwork that backs it up. Done regularly, it means:
- you know whether you’re actually making money, and where it’s going,
- you can see cash problems coming (see Financial planning and cash flow),
- lodging your activity statements and tax return is quicker and cheaper,
- you have the records the ATO expects if it ever asks.
Start with the basics
- Open a separate business bank account. Run every business transaction through it, and nothing personal. This one step makes everything else easier.
- Choose accounting software and connect it to that account (see below).
- Decide where receipts go. Most software lets you photograph a receipt on your phone and attach it to the transaction. Do it when you pay, not at the end of the year.
- Set up your invoices with your business name, ABN, clear payment terms and your bank details. See Getting paid.
What records to keep, and for how long
The ATO expects you to keep records that explain all your business transactions: sales, purchases, expenses, bank statements, invoices and receipts, and records for any assets, vehicles and employees.
- How long: most business records must be kept for at least five years, generally from when you created or received the record, or completed the transaction, whichever is later. Some records need to be kept longer, such as records for assets you still own. Companies have their own record-keeping obligations to ASIC too, so check what applies to you.
- Format: paper or digital is fine, as long as records are in English (or easily converted), can’t be altered without a trace, and are protected from loss. Digital records should be exportable to a standard format such as a spreadsheet.
- Cloud software: if your records live in a cloud service, make sure you can get a full copy out, especially before you change providers.
A 30-minute weekly routine
Pick a regular slot, for example Monday morning, and do these five things:
- Match the bank feed. Your software suggests what each transaction is; confirm or correct it.
- Attach any missing receipts.
- Send invoices for any work completed, and check who owes you.
- Follow up overdue invoices. A friendly reminder the day after the due date works better than waiting a month.
- Glance at your numbers: bank balance, money owed to you, bills due in the next four weeks.
Once a month, add: reconcile every account, review your profit and loss, and compare it with your forecast.
Choosing accounting software
Most small businesses use cloud accounting software that connects to their bank and works on a phone. When you compare options, check:
| What to check | Why it matters |
|---|---|
| Bank feeds with your bank | Transactions flow in automatically, so there’s far less typing |
| Invoicing and online payments | Customers can pay straight from the invoice, so you get paid faster |
| Receipt capture on your phone | Receipts don’t get lost |
| GST and activity statements | Prepares the figures for lodging |
| Payroll with Single Touch Payroll (STP) | Required if you have employees: STP reports wages, tax and super to the ATO each pay run |
| Integrations | Connects to your point of sale, online store, or job management app |
| Accountant access | Your accountant or bookkeeper can log in and work in the same file |
| Price per month and what each plan includes | Plans often limit invoices, users or payroll |
Most providers offer a free trial. Try entering a week of real transactions before you commit, and ask your accountant which software they work with; sharing the same system saves time and fees.
When to get help
You don’t have to do it all yourself. Consider getting help if:
- the books take you more than a few hours a month,
- you’re regularly behind or dreading it,
- you’ve taken on employees and payroll,
- you’re not sure you’re recording things correctly.
Who does what: - A bookkeeper keeps your records up to date and accurate. - A registered BAS agent can also prepare and lodge activity statements for you. - A registered tax agent or accountant prepares your tax return and can give tax advice.
Check that anyone preparing or lodging statements for you is registered with the Tax Practitioners Board.
Common mistakes
- Mixing business and personal spending in one account.
- Leaving it all until tax time, then reconstructing a year from bank statements.
- Not keeping receipts, especially for small cash purchases.
- Ignoring overdue invoices. Unpaid work is the most common cash flow problem.
- Spending money that isn’t yours, such as GST you’ve collected. Keep it aside.