It is estimated that one in fifteen small businesses fail because of inaccurate or poor record-keeping. The ATO’s record keeping requirements have a dual purpose, tax collection being the primary one, but to also give small business owners more financial control. Up to date financials let you make informed business decisions.
Since you have to comply with the ATO requirements, it makes good business sense to make the process and figures more meaningful. Current data will give you greater knowledge of your business’ strengths and weaknesses and help you identify the need for finance before it becomes a crisis. Of course, to obtain finance from a bank you need up to date financial statements.
With the ATO audit activity on the rise they now have a large database of over 30 industry standards they use for benchmarking business performance. These include gross profit margins in your industry, the ratio of wages to turnover and other key performance indicators. Any significant variance in these benchmark ratios could trigger an ATO audit, particularly if you operate in a cash industry. The ATO also reconcile BAS information, PAYG information and end-of-year tax returns and expect you to be able to explain any differences between the various statements.
Late lodgement of documents is also an issue, with late BAS statements incurring fines of up to $850. It’s better to show a BAS estimate, 99% correct, on time, than show a 100% correct BAS late.
Record Keeping Guidelines
- Get on top of the paperwork and the software you are using. If you are struggling, engage someone else to do it (like a bookkeeper or our office) and have them report back to you. Get to know your key numbers.
- If you’re behind with the ATO let us negotiate a payment arrangement for you. Accountants have a rapport and extensive experience with the ATO. They also have greater confidence in negotiating with us rather than an individual client.
- Comply with the deadlines. An approximate BAS on time is better than a late BAS and the ATO has increased the fines and penalties for late lodgement.
- Check the industry benchmarks on the ATO’s website or talk to us to make sure your business is operating within the guidelines.