Here are four good reasons why you should keep records :
1. Preparing tax returns for SARS
All businesses are required to register for tax and submit tax returns during the year.
For sole proprietors and most companies, the tax year runs from 1 March to 28 February each year.
Amongst others, SARS wants to know three things :
- The amount of money your business made.
- What the legitimate expenses of running your business are.
- Details of employees and wages paid.
Keeping your accounts in order will ensure that you have all relevant information available when it is time to submit your tax returns.
2. Preparing a profit and loss account
Keeping books yourself won't necessarily give you a clear indication of how the business is doing to any great extent.
If however you keep accurate books, you can draw up a profit and loss account which is simply a summary of your records over any given period.
This account forms the basis for Income Tax because it shows whether or not you are making a profit.
3. Help with credit control
If you give or receive credit, you need to know who owes you money and to whom you owe money. You also need to know how much debt is outstanding and for how long.
Running a business will likely require you to make use of funding. Recording the amount you borrowed, and knowing exactly how much you still owe, is very important because it will also ensure that you do not overpay your funder or creditor.
4. Legal obligations
If you incorporate a company you must fully comply with the requirements as set out in the Companies Act of 2008.
This means that you will have to keep adequate records to give a fair representation of your company’s business activities.
You may also be required to complete VAT returns and file EMP201 forms with SARS. Both these requirements would require you to keep accurate accounting records.
