Hong Kong is a global business hub, and to maintain this position, Hong Kong has imposed several rules for business recordkeeping. Hong Kong business recordkeeping plays a vital role in strengthening the position of Hong Kong businesses on the global stage. It also helps Hong Kong businesses to analyze their profits and losses and allows them to make changes according to the results.
If you have a business in Hong Kong, then you must follow the recordkeeping rules set by the Hong Kong government. Moreover, if you have doubts about recordkeeping and how to keep business records in Hong Kong, then this article has the best set of data for you. This article will provide you with complete information about recordkeeping, the benefits of business recordkeeping, and the best practices for business recordkeeping in Hong Kong. Further in this article, you will also be facilitated with the most influential tips for effective business recordkeeping in Hong Kong.
What is business recordkeeping, and why is it important?
Business recordkeeping refers to the practice of maintaining records of transactions and financial affairs of the accounting system. Business recordkeeping is a crucial step in keeping your business on the right path and gaining profits in the market. It doesn’t depend on the size of the company in Hong Kong, and it is mandatory for both big and small businesses to keep records of the business.
Business recordkeeping in Hong Kong has great significance in the financial industry and is advantageous to businesses in multiple ways. Recordkeeping is highly crucial for the success of companies in Hong Kong as it helps to portray a positive image of the business to investors and stakeholders. It also helps to be compliant with the recordkeeping laws of Hong Kong and assists companies in keeping track of their earnings and expenses. It also allows you to monitor the cash flow of the business and make informed financial decisions.
What are the benefits of good business recordkeeping?
There are numerous benefits of good business recordkeeping in Hong Kong, as it helps your business grow in a multitude of ways. Let’s get into a detailed discussion about the benefits of business recordkeeping in Hong Kong.
1. Performance Analysis
Good business recordkeeping allows businesses to analyze their performance in the market. It can be the weekly performance, the monthly performance, or the annual performance, and all these results help to improve the functioning of the businesses. It helps companies to make essential modifications to their business operations, which can result in gaining high profits for them.
2. Business Planning
Another benefit of good business planning is that it assists businesses to make long-term strategic plans for their companies. As the records have a history of past performances and business trends, you can use them to predict the direction of the market in the future. Furthermore, you can strategize your future actions in the business and achieve your business goals.
3. Fraud Detection
One of the major benefits of business recordkeeping is read detection and theft prevention. By nurturing good and regular business records, you can detect fraud faster and save your business from losses. Also, if you maintain your records properly, you can prevent the theft of valuable financial data. If the records are being updated regularly, you can detect fraud and save any further thefts.
Types of Business Records
There are various business records that are required to be kept recorded by businesses in Hong Kong. These different types of business records are mentioned below.
- Bank Statements
- Income and expenditure accounting books
- Receipts and payments recording accounting books
- Records of any owned or owed assets and liabilities
- Forms of the daily sum of money earned or spent.
- Records of the sales or purchase of any goods.
- Records of the services it offers
- Record of trading stock
How do you keep good business records in Hong Kong?
According to the Inland Revenue Ordinance (Section 51C), all the companies in Hong Kong must keep good business records in either Chinese or English language. All the business records should be detailed and must describe each transaction precisely. This helps in evaluating the profits correctly and reduces the chances of mistakes. A maximum of HKD 100,000 fine can be imposed on companies that are unable to maintain proper business records. Two different methods can keep good business records:
1. Paper Based Method
The paper-based method is highly popular in businesses with less access to computers or electronics. In the paper-based approach, you are required to update the entries regularly without any delay. You must label the records in a way that they don’t create any confusion and can be accessed easily in times of emergency. The records must be arranged and stored systematically to protect vital business information from potential threats.
2. Electronic Method
The electronic method is widely used in big companies that have adequate access to computers and electronics. Business records can be kept safe electronically by entering the records into secure computer software. In the electronic method, you must enter all the records into the system at a scheduled time. You can scan the invoices and receipts to store records in the systems. You can encrypt your records through passwords or biometrics to make them more protected. By electronic method, you can efficiently organize the records and save them from physical threats such as fire or water.
How long should company records be kept?
As mentioned in Section 51C of the Inland Revenue Ordinance(Cap. 112), the companies have to contain the business records for at least 7 years after the transaction has been done. In case of improper recordkeeping, companies can be fined up to a maximum of HKD 100,000. The companies have to keep the records for up to 7 years even after they have stopped trading. Proper record retention ensures that businesses are reporting their income correctly, which helps in the taxation process of these businesses.
Common Mistakes in Business Recordkeeping
There are some common mistakes that businesses generally make while recordkeeping. These mistakes are provided below.
- Not Keeping Adequate Records – It is a very typical mistake that businesses make in record keeping. They don’t keep adequate records, which harms the company in the later stages of taxation, performance evaluation and budgeting.
- Not Keeping Records Up to Date – Another common mistake is not keeping records up to date. It can result in high losses for the business as you might miss some important records at the time of tax returns or budgeting if you don’t update the records regularly.
- Not Storing Records Securely – It is one of the most commonly reported mistakes in business recordkeeping. If you don’t store the records securely, you might lose some records to physical hazards such as theft or disasters. If you are keeping the records insecurely in the electronic medium, they might get stolen as there is always a possibility of cyber attack.
- Not Backing Up Records Regularly – If you are not backing up the records regularly, you might face problems in the future. In case of any mishap or theft, it is very difficult to retrieve the records. Therefore, it is always wise to back up the records regularly.
- Not Retaining Records for the Required Period – If the companies do not retain records for the required period, it is most likely that they might face legal charges and fines by the Inland Revenue Ordinance. It is a very common mistake that might lead the business to potential losses in the future.
Tips for Effective Business Recordkeeping
In this part, you will be furnished with the best tips for effective business recordkeeping in Hong Kong.
- Use Accounting Software – Accounting software is a great solution for business recordkeeping in Hong Kong as it can automate the process and reduce the chances of human errors. It can help you with calculating salaries, maintaining the leaves of the employees, and securing the records.
- Automate Data Entry – Automating the data entry process can be highly effective for the business as a large amount of data can be entered quickly and smoothly. This saves a lot of time and money used in other business operations.
- Outsource Your Recordkeeping – You can outsource your recordkeeping task to a reputable accountancy firm to comply with the laws and regulations of Hong Kong. Outsourcing the task removes the border of recordkeeping, making the employees free for other work.
- Hire a Bookkeeper – Hiring a bookkeeper for recordkeeping can be a good move as they have more knowledge and experience in doing the work. They can quicken the work through their skills and save you time to strategize for your success.
Get expert Bookkeeping Service from Startupr
Business recordkeeping is a very important part of businesses in Hong Kong. It can help in several ways, including performance analysis, filing taxes, detecting fraud, and planning your future actions. If you want expert assistance in bookkeeping, then Startupr is the companion you are looking for. Startupr has all the elements you might need to maintain your business records in Hong Kong. It can provide experienced and skilled professionals such as bookkeepers, collectors, and business advisors who can help you take your business to greater heights.