Good record keeping is invaluable to business management, growth and success. Managing your paperwork when you are small at the start of your business life is the foundation upon which your business systems and processes will stand as you grow. The saying “you can’t see the woods for the trees” is very applicable here, where a bag of disorderly paperwork certainly prevents the true picture of the business performance from being seen. Imagine this scenario compounded week upon week – bags of receipts and expenditure not recorded systematically, no documentation of sales, and no analysis of expenditure or details from the bank account, and I don’t need to tell you the result – confusion! You can understand why the Revenue is getting tough since such behaviour amounts to irresponsibility and mismanagement of the business. Of course no one sets out to mismanage their business or treat it irresponsibly, but you can see how this can easily happen, particularly for growing small businesses, who still think they will get round to the bookkeeping.
Having a proper record keeping system must be the plan from day one. This does not have to electronic (although the choice is phenomenal now and sometimes free!), but any system that is clear, and comprehensive (to your particular trade) will be sufficient. The challenge once you start your own record keeping is to be consistent and conscientious.
As the business grows outsourcing or employing a bookkeeper will become necessary. I like to think of SME’s who outsource their bookkeeping as making an investment which provide returns in a very short period of time; as once your paperwork is processed in a timely orderly manner, you will soon have answers to most of your business operational questions such as profit levels, cost analysis and comparisons of trading periods. Just think - the tools you will now have at your finger tips from such a small investment! Who would want to be without such important business information?
Another aspect of good record keeping is retaining receipts and invoices for all your business expenditure. Keeping track and reporting all business expenditure however s mall is not only responsible, but allows for a truer picture of the business performance to be documented. Knowing the source of each area of expenditure will also help with accessing how well the business is coping on its own (or not).
From the Revenue’s point of view paying the correct tax is completely reliant on proper record keeping (hence the recent announcement to investigate record keeping). Whilst the Revenue will allow some estimate (I would not recommend this unless circumstances are dire), tax claims are subject to scrutiny; and all allowable expenses used to reduce tax liability could be checked. Once the business becomes VAT registered, record keeping procedure is notched up a gear as most VAT returns are submitted quarterly, and VAT is only claimable on evidence of a VAT invoice or receipt.
So with the Revenue's plan to investigate up to 20,000 SMEs for improper record keeping now is the time to put your house in order - the plan is to keep fines and penalties (when we know how these will pan out) to a mimimum for those who make the effort to put their house in order.
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