With high profile companies such as Qantas recording massive losses, numerous other businesses being put into administration and liquidation, and interest rates still at record lows, there is certainly enough bad news filling the reports in the media.
Are you finding it tougher to make ends meet with rising costs? Is your business suffering due to lower sales, lower margins, or higher overheads?
While there can be a number of causes, there can also be a number of ways to turn things around and improve the results.
One of the keys is knowing how to get the right information to make reasonable decisions that can have a meaningful impact on your situation.
Regardless of economic or industry conditions, the key to success is being disciplined and organised. Those that have timely and meaningful information on their current position and their recent financial performance, are usually able to make better decisions about how to improve their situation in the future.
Are you financially well-organised?
The Three Stages To Financial Knowledge
Everyone’s journey in life, and improving their finances and building wealth, is different.
While this may be the case, the way in which this path can be negotiated is very similar for everyone.
There are 3 main stages that everyone must go through in order to be able to make sound financial and business decisions and improve their wealth position:
1. Keeping good records
This stage is the first and possibly the most important stage – keep your records in good order!
Without this stage, you cannot progress through the next 2 stages – source data is exactly that. It is the source of information that informs whether you are in a good financial position or not.
If you don’t keep good records, then how can you possibly know anything about where your money comes from and goes to?
2. Preparing reports and lodging returns
Once you have your records in good order, the next stage is to do something with them so you can extract information from them.
While preparing tax returns, Business Activity Statements and financial statements may seem like a chore best avoided, there are a number of reasons why it is an important part of the process.
Firstly, lodging tax returns is a legal requirement and in doing so you avoid fines, penalties, interest and possible court action.
Secondly, in preparing your tax returns and financial statements, you are presented with some very valuable information about how you have fared financially in the last 12 months.
This information is invaluable in setting a benchmark in your financial performance, whether it be how your investments have tracked, how much money you earned in your employment, or how your business has performed.
So often people go through this stage without even recognising the wealth of information that is right in front of them.
How can you possibly make decisions about your financial future if you don’t know where you’ve been and where you are?
3. Analyzing the information and making informed decisions
Once you have kept your records, and used them to prepare tax returns and financial statements, you are now ready for the stage that everyone tries to jump to right from the beginning.
Armed with your current financial position, and your recent financial performance, you have a benchmark that you can improve on.
Spending more than you earn? The reports will tell you by how much you need to increase income or areas in which you can cut expenses.
Want to earn more so you can afford a car, house, holiday or more investments? By looking at your current earnings, you can start to work out ways to improve on that, and then plan how to achieve your goals.
Want to retire comfortably? Knowing your current financial position gives you the information you need to calculate the wealth gap you have in your retirement savings plan, and work out to fill that gap.
Don’t know where to start?
Call us at Value Beyond, as we can help you make sense of the numbers. We can also call on our network of connected professionals to help you hit your goals.
Record keeping – What You Need To Know
Record keeping is at the very heart of being able to run a successful business or keeping a tracking of your investments and wealth.
Aside from being a legal requirement to keep records (generally 5 years for tax, 7 years for Corporations Act purposes), without good records you won’t even know whether you are making money or not.
Good record keeping also allows you to keep a track of your cash flow, and monitor the performance of your business or investments.
But what exactly do you need to keep records on?
Broadly, you should keep records in these main categories:
- any payments you have received
- any expenses related to payments you received
- when you have a acquired or disposed of an asset (for example, shares or a rental property)
- any tax deductible gifts or donations
- any medical expenses
If you run a business, these records should also include valid tax invoices so that you can claim back any GST you may be entitled to.
How do you keep these records?
Documents can be either kept in paper, or may be stored electronically.
In either case, they must be in English, or in a form that can be readily accessed and used to work the correct amount of tax you are liable to pay.
If the documents are kept electronically, they must be a true and clear reproduction of the original paper records, and capable of being retrieved and read at all times.
You don’t have to keep original paper records once they have been imaged onto a electronic storage device.
Records can also be collated in a variety of formats, These include cash books, spreadsheets, or commercial accounting packages.
Why keep records?
The Australian Taxation Office requires that you keep records to enable your tax liability to be able to be worked out.
This requires records of:
- sales and expense invoices
- sales and expense receipts
- cash register tapes
- credit card statements
- bank deposit books and cheque butts
- bank account statements
You may also need to keep the following specific tax records:
- motor vehicle details, including log book or business usage records
- debtor and creditor lists
- stocktakes
- depreciating assets
- CGT assets
For individuals, the records that must be kept include details of:
- Salary, wages and allowances
- Income from interest, dividends, managed funds or rental properties
- Car expenses
- Travel expenses
- Clothing, uniform, dry-cleaning, laundry and sun protection
- Self-Education expenses
- Other work-related expenses
- Rental expenses