THE start of the new financial year is the perfect time for many small businesses to make the switch from filing paper receipts to cloud accounting, according to Xero.
The accounting software provider recommends keeping records electronically for accuracy and to monitor cash flow daily – setting up the groundwork for a smooth return at tax time.
Xero Australia managing director Chris Ridd (pictured) has compiled a list with the top five reasons small businesses should go digital.
1. Your income and expenditure is recorded in real time
When money comes into your business you need to record it as income if it’s from a sale or a gain from the sale of an asset. You also need to record who paid you, when they paid and how much GST was collected. Likewise, you need to record and categorise the same details for your expenditure, such as how much GST you paid, whether costs are tax deductible and which purchases can be depreciated. Many accounting software packages do all of this for you. They automatically take information from your bank account and store it in your accounting records according to transaction type.
2. Managing your payroll
Accounting software can also track how much you’ve paid employees, and how much tax and superannuation you need to pay on their behalf.
Many online accounting packages let you send invoices, manage purchase orders and pay bills from anywhere you can use your electronic device.
4. Managing cash flow
Cash flow is the lifeblood of any business. Many businesses fail not because they aren’t profitable, but because they don’t have enough money coming in soon enough to pay creditors. Timing is key - you need to know when money is going to come into your business and when money is due to go out to ensure you have enough cash in the business to pay the bills. Accounting software makes it easy to identify your cash position at any time because it works from real time bank feeds. It ensures you always know your cash position and have plenty of time to plan if it looks like you might not be able to meet your debts in time.
5. Measuring your business’ performance
Once you’ve gone electronic with your accounts, you’ll have a wealth of data to use to keep tabs on how your business is going. You can use your accounting software to compare revenue this month with the same month last year. See if your average sale per customer is rising and keep an eye on your profit margins. You’ll come away with lots of ideas on how you can increase your revenue and grow your business.
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