Accounting Basics For Small Businesses

Blue Orchid Accounting • July 22, 2022

Getting your financial processes in order is a vital starting point for small businesses. Whether you’re just starting out or rapidly outgrowing the classic drawer of receipts, managing your accounting effectively is key to saving you time and stress. Understanding the accounting basics for small businesses provides you with the foundation you need to create workflows and standardise processes, ensuring that you’re never playing catch-up when tax season rolls around.


Accounting covers many business activities, from payroll to inventory to reporting. Here are some of the basics to consider when managing your accounts as a small business:


1. Open A Business Bank Account


Step one to handling accounting for a small business is having the proper accounts to manage. Opening a business bank account separate from your personal finances is vital for creating a separation between you and your company. Business accounts are available from many different banks, allowing you to select an option that best suits your needs and plans for growth.


2. Make Tracking Incomings And Outgoings A Daily Routine


Keeping track of what’s going in and out of your business is the foundation of good small business accounting. A good overview of the income you’re getting and the outgoings leaving your accounts is vital for understanding your current financial health. The more aware you are of your finances, the easier it is to make important business decisions.


3. Invest In A Bookkeeping System


A bookkeeping system does half the work for you by automating specific parts of the accounting process. Instead of manually entering information into a spreadsheet and calculating finances, bookkeeping software takes your financial data and provides all the necessary information. With many systems offering automation through bank account connections, a proper system can save you stress and labour.


4. Formalise Your Payroll Process


If you hire employees, ensuring they are paid correctly according to regulations, and legal requirements is a must. Formalising your payroll process is an effective method to ensure everyone is paid on time. Using payroll software or a template can ensure you account for all taxes and costs involved in payroll, ensuring you have all the information to be ready for the next tax year.


5. Put Preparations In Place For Taxes


A prepared business is a stress-free business. If you want to leave tax season anxiety behind, preparing ahead of time for your taxes is the golden rule. Bookkeeping software can provide clear insight into the business taxes you may owe if you ensure it is kept up to date. Ensuring all your information is reported, stored and easily accessible is key to making taxes plain sailing year after year.


6. Decide On Your Method Of Payment


As a small business, you can take payment from clients and customers in numerous ways. If you run an ecommerce store, you may use an online platform that processes payments for you. Some examples of payment methods include:


  • Digital invoices
  • Cash
  • Online payment gateways
  • Letter invoices
  • Digital wallets


7. Review Your Accountancy Practices Yearly


Regular reviews ensure your accountancy methods are still working for your business. As you grow, change and evolve, adapting your financial processes is vital to ensure you remain in control of your accounts. Regular reports and annual check-ins are valuable to determine if your current methods still work for you.


Getting started in accountancy can be a hurdle for any small business. Ensuring you have the basics down provides the ideal groundwork for long-term financial success. If you require a helping hand, Blue Orchid can provide the support you need. Get in touch with us today to learn how we could help you.

A Close up Of a Purple Orchid on A White Background — Blue Orchid Accounting In Woongarrah, NSW

Blue Orchid Accounting


Since 2011, Blue Orchid Accounting has been providing clients throughout the Central Coast with a comprehensive range of taxation and accounting services. We strive to provide friendly, straightforward advice, helping ensure you’re enabled to make smarter financial decisions and further safeguard your wealth.

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Taking money or other benefits from a private company is not always as simple as making a withdrawal. Under Australia’s Division 7A tax rules, certain payments, loans and forgiven debts can be treated as taxable dividends. Here is a practical overview of how Division 7A works and how private business groups can manage the risk. What is Division 7A? Division 7A is designed to prevent shareholders and their associates from accessing private company profits without paying the appropriate tax. It applies mainly where a private company provides a financial benefit to: A shareholder; or An associate of a shareholder, such as a spouse, relative, family trust or related entity. If Division 7A applies, the benefit may be treated as an unfranked dividend. This means the recipient may need to include the amount in their assessable income without receiving a franking credit. What transactions can trigger Division 7A? Division 7A can apply to more than straightforward cash withdrawals. Common risk areas include: Payments A payment may include: Paying a shareholder’s private expenses; Paying personal credit-card balances; Transferring company property below market value; Paying school fees or mortgage expenses; or Providing company assets for private use. Recording a payment as a “shareholder drawing” does not prevent Division 7A from applying. Loans and advances Division 7A may apply where a private company lends money to a shareholder or associate and the amount is not repaid before the company’s lodgment day. The lodgment day is generally the earlier of: The due date for the company’s tax return; and The date the return is actually lodged. This means lodging the company return early may bring forward the deadline for addressing the loan. Forgiven debts Division 7A may also apply where the company forgives a debt owed by a shareholder or associate. A formal debt release is not always required. Risk can arise where the company writes off the amount or acts in a way that suggests it does not intend to collect the debt. How can a company loan avoid becoming a deemed dividend? A shareholder loan can generally avoid an immediate Division 7A dividend if it is placed under a complying written loan agreement before the company’s lodgment day. A complying loan ordinarily requires: A written and legally effective agreement; Interest charged at no less than the annual Division 7A benchmark rate; A maximum term of seven years for an unsecured loan; or A term of up to 25 years for a qualifying loan secured by a registered mortgage over real property. The ATO’s benchmark interest rate for the 2026–27 income year is 8.77%. Because the benchmark rate changes annually, businesses should update their loan calculations each year. Minimum yearly repayments Once a complying Division 7A loan is established, the borrower must generally make a minimum yearly repayment from the following income year. The repayment is calculated using: The opening loan balance; The benchmark interest rate; and The remaining term of the loan. If the borrower pays less than the required amount by 30 June, the shortfall may be treated as an unfranked dividend. Businesses should also avoid temporary or circular repayments. For example, a shareholder should not repay a company loan immediately before 30 June and then borrow the money back shortly afterwards. Division 7A contains rules that may disregard these repayments. What is distributable surplus? A Division 7A dividend is generally limited to the company’s distributable surplus. Distributable surplus is calculated using a statutory formula based broadly on the company’s net assets, subject to specific adjustments. It is not necessarily the same as: Accounting profit; Retained earnings; Cash held by the company; or The balance of the company’s franking account. Market values and the legal character of assets and liabilities may affect the calculation. For this reason, businesses should prepare a documented distributable-surplus calculation rather than relying only on the balance sheet. Division 7A and family trusts Division 7A can also affect trust structures. A common arrangement occurs where a trust distributes income to a private company but does not immediately pay the amount. This is commonly referred to as an unpaid present entitlement, or UPE. In June 2026, the High Court delivered its decision in Commissioner of Taxation v Bendel. The Court found that the UPEs in that particular case were not loans made by the corporate beneficiary to the trustee for the purposes of section 109D. However, Bendel does not mean that all UPEs are automatically outside Division 7A. The trust deed, distribution resolutions and subsequent use of the funds remain important. Separate Division 7A provisions may apply if the trust provides payments, loans or other benefits to the company’s shareholders or their associates. Private groups with corporate beneficiaries should therefore review existing UPE arrangements in light of Bendel and the ATO’s updated position. Can a Division 7A mistake be corrected? The Commissioner has discretion under section 109RB to disregard a deemed dividend, or allow it to be franked, where the Division 7A outcome arose from an honest mistake or inadvertent omission. Relief is not automatic. The ATO may consider: How the mistake occurred; Whether reasonable care was taken; The taxpayer’s compliance history; and Whether appropriate corrective action was completed. Corrective action may involve repayments, interest, amended accounts, loan documentation or amended tax returns. Documents should never be backdated or created to support transactions that did not actually occur. Practical steps for business owners Division 7A should be reviewed throughout the year—not only when the company tax return is prepared. A practical compliance process should include: Reconciling shareholder and director loan accounts; Identifying private expenses paid by the company; Reviewing benefits provided to shareholders and family members; Documenting new loans before the company’s lodgment day; Calculating minimum yearly repayments; Confirming repayments have cleared by 30 June; Checking the source of repayment funds; Preparing a distributable-surplus calculation; and Reviewing trust distributions and UPEs. The bottom line Division 7A can turn an informal payment, loan or accounting entry into an unfranked taxable dividend. The best risk-management strategy is to identify transactions early, maintain effective documentation and review all shareholder and related-party accounts before 30 June and before lodging the company’s tax return. Division 7A is highly fact-dependent. Business owners should obtain professional advice before implementing or correcting a private company or trust arrangement. This blog provides general information only and is current as at 13 August 2026. It is not legal, tax or financial advice.
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