Having an understanding of your business’s financial status is extremely important and helps you determine when to increase your growing efforts. While some business owners love diving into the numbers and processes of business accounting, for others it can feel like they are completely out of their depths. Making the right calculations and correctly recording your cash flow is not only important for legal reasons, but also for tax purposes. Errors can be costly to fix. That’s why some business owners opt for hiring external help from a professional bookkeeper, accountant, or tax agent. If that’s the case, always ensure they’re certified for the job and have endorsement from other small businesses. On the other hand, a vast majority of small businesses handle all of their accounting and bookkeeping on their own. If this is the case, it’s a good idea to have an understanding of the common errors made in business accounting, to know how to avoid them. Today, Shoebox Books shares some of the most common errors small businesses make in accounting and how to avoid them.
1. Bad Budgeting
We know it's a cliche but budgeting can make or break a business. Glossing over expenses can give you a false sense of how much you need to make to break even or profit. This leads to premature celebration when you make budget or go over; also, it may mean paying more tax – which again, means less profit than expected for your business. Have a comprehensive scan over your expenses at a daily level and re-evaluate your budget on a regular basis. Overall, a thorough budget will give you a clear idea of how your business is going, whether you’re breaking even, or even making a profit. If you’re a new business, this process can be a bit of a learning curve, but don’t despair, it just takes a bit of time to learn the ropes.
2. Understand the Difference Between Employees and Contractors
Hiring staff is an exciting time for a growing business – albeit, a slightly confusing one if you’re not sure about payment systems. Ultimately, there are two ways to hire staff, with pros and cons to both. Essentially, you can hire an employee or a contractor. There are massive differences in terms of insurance, payroll tax, legalities and other implications when it comes to whether your ‘staff’ are actually employed by you or are contracted by your company to do jobs. Deciding which to go with depends on whether you’ll need the extra help on a temporary or long-term basis.
Contractors are themselves businesses – they invoice you for the hours spent on the agreed jobs. Think construction companies
or copywriters who need to keep track of hours rather than a salary. Due to you contracting them (or outsourcing their business) to work for you, you are not liable to pay their super contributions, tax, or any benefits. At the other end of the spectrum, if you’re looking for someone to work within your business and as a member of your business, then hiring a casual, part-time, or full-time permanent employee is the way to go. This does come with extra responsibilities that fall on you as an employer, however, it means bringing people into your business that are working towards fulfilling your goals and who will have a better understanding of your business and what it's about.
3. No Organisation or Paperwork
Keeping the right documentation is extremely important, especially when it comes to tax time. While putting off doing the books until the end of the week – or month – is tempting, it’s an easy way to get behind on financial statements, reports that must be filed, sales tax payments, and bill payments. Also, it leaves a lot of work to do to catch up when it’s tax time. Give yourself a daily checklist of tasks you need to complete and keep all of your paperwork organised neatly in files (either digitally or physically). Remember, you’re legally required to hold onto these files for seven years in Australia.
4. Mixing Personal Finances With Business
According to Clutch, more than a quarter of small businesses (27%)
say they don’t have a separate bank account for their business, a potentially risky situation! Mixing up financial accounts can make it tougher to sort out your personal expenses (which are not tax deductible) from your business transactions, which could be a big headache when tax time comes around. This has the potential to cause you to miss an expense that you could list as a business deduction, or you could get in some trouble deducting inappropriate expenses. Unless you’re a sole trader, opening up a separate business account and not mixing business and personal expenses is a good idea.
5. Not Hiring the Right Bookkeeper...Or one at all
For small business owners that are not 100% confident in their money management skills, hiring a bookkeeper to help can be a great advantage. Remember that while it’s an added expense, it’s an investment into your business and its growth, and it’s also something that is deductible during tax time. Let’s look at some other benefits to hiring a professional bookkeeper.
Benefits to Outsourcing Help from a Bookkeeper
- You save time doing the books, meaning more time spent running your business.
- You’re hiring someone that will understand the ins and outs of business finance and that can give you relevant and helpful advice.
- They will get to know your business and help you work towards your goals.
- They can help you address weak spots in your budgeting or cash flow.
- All of your documentation will be well organised and available to you to access whenever you need it.
- They take the stress out of money management.
Hiring the right bookkeeper for your business ensures they understand your business and the industry you operate in, and it means you’re hiring someone with the same ambition and drive as you. Do your research before hiring the right bookkeeper for you.
Setting up your business to have a good management of finances can save your business a lot of money, time, and stress. If you’re new to business accounting, or simply need a little refresher, try out some of the tips mentioned in this article.
If you’re looking for a trust-worthy and qualified bookkeeper in your area, see if there are any Shoebox Books bookkeepers in your area. Shoebox Books has certified bookkeepers all around Australia waiting to support your business. Enquire today
about our bookkeeping services or head to our pricing page
for more information.