Equality? Maybe not this time!
Not all business owners are created equal. Not every bookkeepers are created equal either. So, who’s responsible for what? And are they good at what they are supposed to be responsible for? What’s minimum amount of compliance that is required before everything goes to goop-n-poop? Who takes care of the moolah? The cheese?
Feeling overwhelmed already?
As a business owner, you juggle numerous responsibilities, from daily operations and customer interactions to marketing strategies and networking efforts. Maintaining financial spreadsheets, analyzing data, and overseeing cash flow can often seem like an overwhelming task in the midst of it all.
The truth is effective bookkeeping, financial control, and regulatory compliance are crucial for the long-term success of your business. Before you find yourself spending another late-night poring over spreadsheets, here are 12 indispensable bookkeeping lessons that every business should be aware of. Or call them insights.
And should you ever find yourself feeling overwhelmed, rest assured that you can rely on us for support. We’re are in Melbourne. We are committed to ensuring your business finances remain on the path to success – by providing awesome bookkeeping services.
1. Maintain Clear Separation Between Personal and Business
Initially, the idea of commingling personal and business funds may not appear to be a significant issue. Nevertheless, it’s imperative for every business to establish a distinct business bank account that is entirely separate from any personal bank accounts. In certain instances, the creation of a separate business bank account is mandatory, contingent upon your business’s legal structure.
Having a dedicated business account simplifies the process of tracking and organising your business-related transactions, benefiting both you and your bookkeeper. This separation of finances can save you a considerable amount of time, effort, and the unnecessary stress that can come from mixing personal and business financial records.
2. Embrace Automation with Cloud-Based Accounting
We’re fortunate to be in an era where cloud-based accounting software empowers business owners with the ability to access crucial business data whenever necessary. Thanks to advancements in software integration technology, the days of sifting through stacks of paperwork each month, manually checking spreadsheets. And performing calculations are behind us. Today, cloud-based software handles the majority of these tasks. This streamlines your business operations.
Accounting software, such as MYOB or Xero, can efficiently automate tasks. That includes stuff like sending invoices to customers on their due dates, monitoring both incoming and outgoing expenses, and producing comprehensive reports on your cash flow. With a plethora of software options available, the ideal choice for you is the one that simplifies your life. If you’re uncertain about which option suits your needs best, don’t hesitate to consult a bookkeeping expert for clear and tailored guidance.
3. Establish a Simple and Effective Record-Keeping System
It’s crucial to document every transaction your business engages in and arrange this information in a user-friendly manner. This organised record-keeping process will enable you to efficiently manage your cash flow. By meticulously tracking all business records, such as invoices, receipts, and expenses, you will gain insights into future growth opportunities for your business. You will also ensure tax compliance, offering protection in the event of an audit.
While there are convenient methods to digitise paper receipts, if you opt to retain physical records, it’s essential to keep them securely stored in a locked cabinet. Organising them within a straightforward system will facilitate easy access and management. Additionally, having backup copies of your records is advisable to safeguard against potential loss.
Alternatively, many cloud-based bookkeeping software solutions offer the capability to store these documents electronically. You can simply scan receipts using your phone or forward electronic bills directly to your online bookkeeping system for easy reconciliation and secure record storage.
4. Schedule Reminders for Critical Deadlines
As a busy business owner, you’re constantly juggling various tasks and responsibilities. With your plate full, it’s easy to lose track of important dates such as GST payments, payroll processing, and regular business invoices. To prevent the risk of missing deadlines that could result in fines or dissatisfied partners, establish regular reminders. You can achieve this by using your online email calendar. Or even your smartphone to ensure you stay on top of essential dates.
Even jotting down notes a few days prior to deadlines can serve as a helpful reminder if you routinely consult your physical calendar.
5. Establish a Robust Audit Trail
Regardless of how meticulous you are with your financial records; the possibility of a tax audit always looms. It’s essential to create a comprehensive documentation trail that substantiates all your expenditures and customer payments. This trail of evidence ensures that you have a clear record of everything you’ve purchased, and all payments received from your customers, providing vital support in the event of an audit.
An audit trail consists of a collection of documents designed to authenticate the transactions documented in your financial records. This trail serves as a roadmap for retracing your financial steps. It can be invaluable in resolving issues related to tax inaccuracies, verifying source documents, or locating any missing transactions.
6. Familiarize Yourself with Business Expenses
When you embark on your business journey, it can be challenging to anticipate the various expenses you’ll encounter. You have to be able to discern which costs are tax-deductible. Expenses directly tied to your business operations and linked to income generation are typically eligible for tax deductions. Conversely, personal expenditures, those unrelated to your business, should not be included in your business accounts.
Combining business and personal accounts does not imply that you can automatically claim every purchase as a deduction. It’s crucial to assess and comprehend what qualifies as a deductible expense under Australian Tax Laws. If you’re uncertain about what constitutes a deductible purchase, it’s advisable to seek guidance from either a qualified accounting professional.
7. Generate Routine Financial Reports
Effective bookkeeping isn’t solely about meeting tax obligations; it also enables you to conduct regular financial assessments. By meticulously tracking your cash inflows and outflows, you can easily perform routine financial check-ups. Utilizing the appropriate accounting software can help ensure prompt invoice payments from customers and prevent reporting discrepancies.
8. Monitor Cash Transactions
While conducting monthly check-ups is beneficial, it’s equally important to perform comprehensive reviews of your accounting and bookkeeping records at the end of each quarter. During these assessments, pay close attention to trends such as fluctuations in sales, significant expenses, or indications of delayed payments from customers. A thorough examination of your financial data will assist you in better cash flow planning for the future.
It’s a detail that can be overlooked when you’re initially establishing your business, but it’s crucial to diligently record cash payments. Any cash received by your business should be deposited into the business bank account before using it, even for purchasing business supplies. While it might be tempting to immediately use the cash for necessary expenses, doing so can disrupt your bookkeeping system
9. Document Customer Information for Cash Payments
When recording cash payments, it’s essential to include details about which customer made the payment to avoid unnecessary follow-ups in the future. If you’re unsure about how to manage the specifics of cash payments within your accounting software, don’t hesitate to seek guidance from a bookkeeper who can assist you in configuring and utilizing the software correctly.
Witnessing your business turn a profit is undoubtedly a gratifying experience. You may be tempted to reinvest all your surplus funds into your company immediately, directing them toward product development, marketing, and other growth initiatives to sustain your business’s momentum. While this is a wise strategy, it’s important not to rush the process.
Keep in mind that a portion of your earnings will be earmarked for tax obligations when the year concludes. It’s advisable to set aside a portion of your income, typically around 20%, to guarantee you have sufficient funds available to meet your tax responsibilities. If you find it challenging to retain this money within your business account, consider opening a separate savings account dedicated solely to this purpose. If it feels too much, have another look at the business model. Something is not working (or not meant to be?).
10. Grasp the Fundamentals
Many business owners believe that they can bypass learning about tax and accounting regulations, assuming that professionals or automated accounting software will handle everything. However, while these resources can certainly reduce the risk of tax-related issues, it’s still wise to be knowledgeable about your tax obligations.
Take the initiative to research online and acquaint yourself with the essential aspects of tax and accounting relevant to your specific business type. Keep in mind that registered companies have different tax rules compared to sole traders and partnerships. Ensure you understand whether you’re subject to corporation tax, registered for GST, and other recurring fees. Having a foundational understanding of tax principles can potentially spare you from encountering significant penalties.
11. Consider Outsourcing to a Professional Bookkeeper
While cloud-based accounting systems like Xero, QuickBooks, and Reckon have made it more convenient for business owners to manage their accounting, it doesn’t negate the advantages of using a professional bookkeeper. Outsourcing to an experienced bookkeeper can offer numerous benefits, including:
- Time Savings: By entrusting your bookkeeping tasks to a professional, you free up valuable time to focus on other aspects of your business.
- Up-to-Date and Organized Records: A professional bookkeeper ensures that your financial records are consistently up-to-date and well-organized.
- Cost Savings: Outsourcing can be cost-effective when compared to hiring an in-house bookkeeper, as you only pay for the services you need.
- Compliance: A professional bookkeeper can help you meet all compliance activities, including BAS and tax obligations, reducing the risk of penalties.
- Informed Decision-Making: With professionally organized books, you gain a clear understanding of your business’s financial performance, enabling you to make informed decisions.”
Using a professional bookkeeper can streamline your financial processes and provide you with the insights needed to make sound business decisions.
12. Give Priority to Your Bookkeeping
Last but not least, while managing your business expenses may not be the most thrilling aspect of entrepreneurship, it is an absolute priority. A single mistake on a tax report or disarray in your bookkeeping records can lead to significant complications. Right from the start, establish a strategy for maintaining organized and current financial records.
While you don’t necessarily need to reconcile every transaction daily, it’s essential to review your financial data at least once a month to ensure accuracy and timely record-keeping.
Embrace a Dedication to Improved Bookkeeping
Whether you’re personally managing the majority of your accounting tasks or entrusting them to a professional, a sound bookkeeping strategy is paramount. By adhering to the tips outlined above, you can gain a clearer grasp of your business’s cash flow, reduce tax-related complications, and unlock more avenues for growth. See, it’s not all bad, right?
Actually, it can be quite easy if you are working with the right pros.
Give us a shot?