In the final installment of our ‘Planning Your Business Exit’ series, we’re taking a look at the importance of record keeping for your business, preparing your business both today and in future for a successful and smooth business exit.

As a business owner, record keeping is a legal obligation to manage and keep track of all transactions across your business journey, and not only will it make your business exit much more streamlined, but it also comes down to the core of your business operations, and understanding what you’re spending, what you’re making and where those key funds are going.

What should you be keeping track of?

At a base level, all documents that relate to your business income and expenses are essential to record, update and store securely. Anything related to business tax, super, bank statements, employee wages, business purchases and stock, business vehicles, travel – the list can be endless. A small business owner may like to take care of their own record keeping if it’s a manageable level, but medium to large businesses will often have dedicated accounting experts and bookkeepers to assist you with this, not just at tax time, but across the year.

Why is it important?

Aside from the legal impact of not keeping accurate records, you can miss out on opportunities to expand your business and of course, to sell it when the time comes. Boiling business down to its core, it’s all about the numbers, and being able to clearly state what your business is making, to be able to make sensible projections and predictions, and to show that your business is not only successful but growing and on a continued growth trajectory.

When it comes to requiring a business loan or investment capital, the financials and records will be a key part of the due diligence process to identify both the amount you need, and what you can qualify for.

Even in your day-to-day operations, having clear records to review across all areas of your business expenditure and sales, you’re able to streamline and maximise your efficiency, reduce spending in areas that are blowing out your budgets, and assess if your business is feasible, investable and sale ready.

It’s all in the details

The minimum information that needs to be on every record generally includes:

Date of transaction, total amount, what type of transaction it was (whether staff wages or a purchase of equipment), what GST is included, transaction purpose and if there is a notable relationship between the transacting parties (for example, a regular supplier or vendor you utilise for your business).

As a general rule of thumb, you’re always better to err on the side of keeping a record of it than not, across all business operations.

Doing it ‘by the book’

In terms of just how you keep records, there are a few important rules to follow for ‘best practice’ methods. Store and save your records electronically – even if you prefer paper means of recording certain things. Ink fades, so physical receipts can be helpful but you can easily download a free scanning app on your phone to keep track of these. Of course, there will be some important business documents that will have paper records which will need to be stored safely as well as backed up digitally.

Make sure you have a good level of security on your digital records, using password and 2-factor authorisation for logging in (keeping track of who in your team has access to certain records is also important, to avoid any accidental movement or deletion) and utilise encryption in case of a security breach such as hacking or phishing (scammer and hacker methods are only becoming more sophisticated as the years go on).

Keep your personal records separate to your business, and get clear on where your business and personal expenses merge. Always keep your records for at least 5 years or longer, and if you’re able to save them all (depending on how long your business has been in running, you may have always had a digital system in place so there’s no harm in keeping records from 5 years prior and beyond – you never know when they might come in handy).

Not only will proper record keeping make it easy for you to claim everything that you are entitled to at the end of every financial year, but it will give future buyers peace of mind to know they can get any piece of information they need.