Keeping great records is important for every business. It’s tied to legal and tax obligations, but it also allows you to keep track of how your business is performing. In this article we’re going to explore the pros and cons of using an electronic record-keeping system, and what you should consider when choosing one.
What kinds of records do businesses need to keep?
When it comes to accounting for your business, there are several types of records you’ll need to keep. These are used for capturing information, generating reports, and meeting your tax and legal obligations. They also help you monitor profit and loss, minimise risk, and protect your rights.
- As we covered in our article “Record-Keeping Requirements for Business”, you should keep records that relate to any of the following:
- Starting your business
- Running your business
- Changing your business
- Selling/Closing a business
Keep records relating to income and expenses, as well as those showing how you came to a conclusion (i.e. using methods, calculations, estimates). Any records that relate to both personal business affairs should show the portion that relates to your business.
As a general rule, you’ll need to keep your records for 5 years.
Business QLD has a great guide on what type of records to keep.
Why keep records electronically?
Some of the benefits of keeping electronic records are obvious. Using an electronic record-keeping system allows you to easily run reports, quickly search and access information, and often access your records from remote locations. It also provides security in that you are not reliant on a physical copy and the risk that comes with loss or destruction.
The ATO recommends keeping your records using an electronic record-keeping system. Bear in mind the ATO may need to access your records in the future – this is another reason to ensure everything is filed and labelled systematically and is easily accessible.
- Some more reasons for using an electronic record-keeping system:
- The use of electronic storage systems requires less physical space
- Quickly generate invoices, receipts, copies from previous records and even share them more quickly than paper versions
- Automate calculations
- Provide easy and quick access to your accountant and financial teams
What are the disadvantages?
While the advantages of an electronic record-keeping system are many, there are a few drawbacks to consider if you’re looking to make the switch.
- Backups are still required. It’s advisable to keep a separate copy of your electronic records in a separate place to your originals, to avoid loss or damage.
- Security and privacy are a potential risk. When you store records electronically, there’s a risk that someone could inadvertently or deliberately access your sensitive information. Most systems, however, have high protections in place.
- Can be expensive to set up, or require a regular subscription. Unlike keeping physical records, you will probably need to pay for the setup and/or maintenance of electronic records. For example, if you use software like Xero to store records, payment is required.
- Complex audit trails, if you need to correct a mistake. Sometimes you make an error and need to make a change. Electronic systems will keep track of the changes and more explanation may be required.
- Possibly a learning curve. Depending on which electronic system you choose, you may need to learn a new way of doing things.
How to keep electronic business records
It’s a good idea to first chat with your accountant, before making a decision about the software or platform to use.
At QCA, we use Xero but we have experience with other systems. Give us a call to discuss your options.
How can QCA help?
Have a chat with us about the software and platforms we recommend. We’ve seen a few so we can listen to your requirements and suggest some options.
If you’re unsure about whether a specific record must be kept, ask your accountant or financial advisor. It always pays to be safe. Speak to us if there is something you’re not sure about.
If you have any questions at all, do not hesitate to contact our team of professionals on 07 5593 6060 – we are here to help you.