Is It Really Necessary To Hire A Bookkeeper?

For small business owners, hiring a bookkeeper is already considered an unnecessary expense because of believing that a bookkeeping task can be done without the help of a professional. A bookkeeper is known for taking care of necessary paperwork. Although not hiring a bookkeeper can save you money, not doing the task right can result in an expensive mistake. Financial report needs to be done accurately because it is where business owners check the performance of a business.

Reasons a bookkeeper is essential to a small business

You have difficulties growing your business: Growing your business is definitely one of the goals you wish to accomplish. A bookkeeper is responsible for recommending the steps that a business owner needs to take so business growth can be achieved. If a business owner does not have a bookkeeper and decides to grow the business, he may eventually suffer due to financial problems that he will face. A bookkeeper advises which direction a business owner should take. The financial report that they prepare will serve as an accountant’s reference for giving advice or recommendations.

You have no access to essential information relevant to your business: A bookkeeper provides valuable information to a business owner that will help them gain a deeper understanding of tax code. Due to the fact that the tax code is changing, a business owner needs an update of the changes.

You will have trouble tracking your personal expenses: Running a business can be a daunting task let alone monitoring your business expenses. When you are juggling multiple jobs at the same time, it seems difficult for you to determine where you are spending your money. A bookkeeper will advise you to have a separate business and personal accounts. This way, you will prevent mixing the two as it can trigger untimely audit from the ATO. When it comes to ATO audits, the burden of proof will definitely be on you because you need to prove that the expenses in question are business-related.

You waste your time and money: A bookkeeper puts things in proper perspective by helping you focus on more valuable aspects of your business while they keep your business on its feet. Time is money for business owners and this is why carrying out tasks efficiently is important. A bookkeeper that reminds you of your payment deadlines can help you avoid penalties and fines.

If you are still vacillating between hiring a bookkeeper and setting the idea aside, keep in mind that your business can be in chaos because you do not have a bookkeeper professional to prepare your financial reports or remind you of tax time.

Business Practices Your Bookkeeper Cannot Afford To Screw Up

When dealing with numbers, accuracy is very important especially if you are a bookkeeper. Financial reports are the lifeblood of every company. It is where business owners refer their decisions on growing their business. Before you can create a flawless business plan, getting your bookkeeping practices in place must be kept in mind. Committing too many errors on your financial report spells trouble.

Don’t pocket cash from clients

When it comes to securing a loan or seeking for investors, the profit margin plays a huge role. For small business owners, it can be tempting to pocket cash from clients considering the fact that it is your money. However, this practice can wreak havoc on your business in the long run because it undervalues your company. If the money you earn from clients is not on record, your financial report will appear to have a low profit margin and this will not qualify you for additional funds. It can also hurt your tax because when the cash is not reported, you will not be paying taxes on it and this practice is more likely to attract penalties once audit occurs. Make sure you deposit your business income into your business bank account if you want to increase your profit.

Don’t use personal bank accounts

Collecting your income in your personal bank account is not a good practice to follow because it denies you of getting a clear financial picture. How would you know if your business is making a profit if you have already mixed your business and personal bank accounts? You may not know your financial history if you have already fused two accounts into one. Knowing your financial history is a crucial step especially when ATO decides to audit your company. You can be held liable of paying additional taxes if you keep on following the practice.

Don’t ignore bank reconciliation

Make it a habit to check if your bank account is reconciled on a monthly basis. Bank reconciliation ensures that your bank account matches the amount listed in your bookkeeping software. Failing to reconcile regularly can end up overdrawing your bank account, which will result in shouldering bank fees.

Don’t underestimate the value of bookkeeping software

When tracking your financials, it is good to have bookkeeping software that will ease you into recording figures efficiently. Make sure you choose software that can give you real-time information and updates of your financial activities. Bookkeeping and accounting should be part of your routine. Avoid skimping on this valuable task because it allows you to monitor where your money is going. Tracking your expenses and income will give you peace of mind as you know you are not wasting money.

Know The Difference Between Profit And Cash Flow

When going through a financial report, business owners take a look at cash flow and profit. As a bookkeeper, it is important to distinguish profit from cash flow.  Just because a business is making profit does not mean that cash flow is higher than the bottom-line profit.  Another surprising fact about cash flow and profit is that you can have a negative cash flow when earning a profit and a positive cash flow when you have a loss.

Cash flow refers to the difference between the actual cash used and the actual cash received. This means that the company receives and pays a certain amount of cash. Cash flow is a good guide for determining how your business is doing.

On the other hand, profit is revenue from sales of products and services. They can either be payment in the form of cash. The cash may or may have not been received yet and minus all expenses such as the expenses paid in cash, the expenses to be paid in cash at a much later date and the expenses and the expenses accounted for using other means.
It is necessary to find out whether your company is earning income by taking a look at the profit you are making.  Another way to know if your company is earning income is by tracking transactions including profits, sales and expenses.

Operating cash flow versus non-operating cash flow

Operating cash flow refers to the result of any cash activity taking place in a business operation regardless of whether the cash transaction generates earned revenue or incurs expenses when the transaction was made. A good example is when customers make advanced payments for their future purchases. With advanced payments, the company’s cash holding will have no effect on its current profitability. Another example is when a company choose to prepay future obligations. Prepaying future expenses reduce the company’s cash holdings without necessarily lowering the reported profitability when the cash transaction was made.

Not all cash flows come from the company’s operating activities as they can also be from financing and investing activities. When companies obtain funds or sell and investment from financing, an increase in cash positions will be reported. However, the financing proceeds and investment sale are not considered revenues. Using cash for repayments and investments are not considered expenses, thus they have no effect on the company’s profitability.

Business owners must assess short-term and long-term objectives to identify whether to focus on profits or cash. A company that has a strong current cash position should concentrate on driving more sales. If the company needs additional cash for covering short-term expenses, the profits need to take a backseat.

Constantly Ignoring Your Bookkeeping Task Can Cause Business To Fail

Any business endeavour will not be complete without bookkeeping. Although the task usually involves dealing with numbers, accuracy in entering financial details is also important. For small businesses, hiring a bookkeeper is burdensome because of the cost associated with it. This is why small business owners skip hiring a bookkeeper to save money. Unfortunately, bookkeeping errors can cost more money in the long run. When significant details are not entered properly, these mistakes can impede business growth. Proper bookkeeping procedures are essential because it prevents financial trouble.

Don’t manage crucial bookkeeping tasks on your own

You may be one of the entrepreneurs who are passionate about your business that you tend to do everything on your own, but problem may arise especially if you are only running a fledgling company. If there is only one person handling all of your tasks, this can spell trouble because in due time the quality of service also deteriorates. One of the important aspects of managing your business is maintaining accounts and you need a reliable bookkeeper for that. To prevent frequent errors on your financial report, make sure you pay attention to the financial aspect of your business by hiring a bookkeeping professional to handle your accounts.

Choosing the cheapest methods

When it comes to cutting costs, seeking out for the cheapest methods create a ripple effect on your business. You may think about the least expensive method that can help you save money until you grow your business, but this may not be considered effective especially if there are frequent mistakes on your report. Your business cannot afford to make mistakes in payroll taxes. Instead of going for the cheapest method, invest in people that can help you deliver quality work. The cheapest option may only lead to unsatisfactory result.

Unable to tell the difference between profit and cash flow

Some business owners mistake profit for cash flow. The profit refers to the money you obtain from sales revenue after the expenses of your company have been deducted. On the other hand, cash flow refers to the money that flows in and out of your company from business operations such as financial activities and investment.  A business owner should also take note that even if the company is profitable, it can still go broke. When these mistakes are frequently committed, it is possible for your business to go bankrupt. To avoid this, it is essential to keep track of the items you are selling and spending. You will also have to take time to review your financial statements on a monthly basis so you will have a clear idea of your financial situation.

Mixing personal with business account

You can mess up your business finances once you make it a habit to mix business with personal finances. When you open a business, create a bank account that is exclusive for your business income and expenditures. Your business bank account should be intended for your business finances only. When you fail to separate your business accounts from your personal accounts, you will have trouble keeping track of your finances. A separate business account can help you get a pain-free record keeping.

What Exactly Is A Cash Flow?

Although the cash flow definition is pretty straight forward as it is simply the money that flows in and out of your company, it is still considered as the most important aspect that every business owner needs to pay serious attention to. It can be compared to a checking account ledger where deposits and withdrawals of cash flows are reflected.

However, many businesses fail to keep track of their cash flow that it is already too late to discover they have negative cash flow during the first year of their business operation. Negative cash flow refers to the decline in the cash balance over a particular period of time. Although it differs from negative cash balance or bouncing checks, negative cash flow also has a deleterious effect on your business.

Although negative cash flow can happen from time to time, it is still essential to monitor it because when the time comes a business owner wants to grow the business, get loans and attract investors, there is an assurance that the business has a healthy cash flow.

Cash Flow Statement

A cash flow statement provides you details of the changes in the cash balance. This statement is used for recording cash flow projection, which is helpful in forecasting the future of your business’ financial aspect. When managing and growing your business, it is important to have an up-to-date cash flow plan. Even if you have a bookkeeper to take care of your cash flow, it is still important to understand cash flow so you will know the difference between cash on hand and the money you are owed. One of the reasons for bankruptcy is the delay in paying receivables. Delayed payments only mean that a company has trouble handling operating expenses.

Your business can increase the possibility of success with good cash flow management. Hiring new employees, making inventory purchases and spending money on office improvements are just a few of the benefits of a positive cash flow. A company will have trouble acquiring new leads due to managing cash flow poorly. This is why business owners must see to it that cash flow is monitored on a regular basis.

If there are future problems with cash, forecasting cash flow will help a business owner identify them. Both bookkeepers and business owners will have an ample time to make plans in advance so problems do not create an impact on day-to-day activities. Even when cash is tight, having a solid understanding of the best time make pay outs will make a difference.

What Is The Purpose Of Financial Report?

Financial reports are essential to every business because it helps you track and review the amount of money that your business spends and makes. It is also used to provide information to the shareowners and lenders of your business. Investors and lenders have the right to obtain information if their money is returning a profit or spent wisely.

A business owner must also take note of the elements that need to be present in a financial report. The report shows the profit and loss, but it should also indicate the profit your business is making and the loss it is suffering from. The assets must also be shown on the report so you will determine how your business is doing. Financial reports are not easy to interpret but there are businesses that may assume that the readers are knowledgeable about business and finance.

Although it is required for business owners to understand basic measurement methods and accounting terminology, it is important for readers to fairly interpret the reports to find out about the company’s financial standing. The financial report must also be kept legal by ensuring that it is governed by common and statutory law. The reports should be done based on ethical standards.

What companies should lodge financial reports?

•    the company with great sums of money involved;
•    the company that exists for charitable purposes and not for making a profit;
•    the general public that has invested funds with the company.

The following entities are also required to prepare financial reports according to Section 292 of Corporations Act 2001:

•    public companies
•    all disclosing entities
•    all registered schemes
•    all large proprietary companies
•    small proprietary companies that are foreign-controlled
•    small proprietary companies or small companies limited by guarantee
•    small companies limited by guarantee subject to a shareholder direction under s294a of the Corporations Act
•    small proprietary companies subject to a shareholder direction under s293 of the Corporations Act

How to lodge a financial report?

A copy of Form 388 of financial statements and reports must be secured, completed and lodged with the required documents. If a company holds an Australian Financial Service Licence, a business owner must also lodge a profit and loss statement, balance sheet and auditor’s report using a Form FS70.

The financial report must be lodged in accordance to Corporations Act. All other companies must see to it that the financial reports are lodged within four months after the end of the financial year. The company that has not made a profit or traded during the financial year will still be required to lodge their financial reports.

Good Bookkeeping Habits For Small Business

For small business owners, bookkeeping can be your least favourite task unless you are a fan of working with numbers. However, there are some good habits you can adopt so costly errors are prevented especially when it comes to record keeping. Once you are busy dealing with the financial details of your business, it is easy to overlook one of the most important aspects of your business. Although you might get tempted to tweak your budget, the problem may worsen once you lose track of your financial activity. It is important that you have a bookkeeping system in place so you can handle your money properly and prepare your records in time for audit.

Track your expenses

When you fail to track your expenses, you may encounter problems with missing tax write-offs in the end. When it comes to business credit cards, make sure they are tracked and kept together. Your payments must be kept up to date and the bill must be categorized into types of expenses. One way you can prepare for audits is to mark your calendars to keep track of important dates. This way, you will be able to substantiate expenses for your tax records. As a result, you will no longer have to worry about being audited.

Monitor deposits

Monitoring business bank account deposits can also help you determine if you are ready to pay taxes or grow your business. Having a separate bank account for your business will help prevent using your money for personal expenses.

Don’t ignore invoices

Another bad habit that can hurt your cash flow is allowing your bills to be left unpaid. A bookkeeper can track your billing and put a process in place so you can ensure that bills are paid in a timely manner. When there are unpaid bills, a bookkeeper can simply make a phone call and levy penalties. If clients are late in making payments, make a plan so you will know what to do.

Plan major business expenses

Analyse your budget before venturing into a big project and be honest about your financial standing. If you are always in denial about the expenses that your business incurs, you will not be aware that your spending habits are already hurting your cash flow. You also have to acknowledge that your business may experience seasonal ups and downs. When it comes to major upgrades, it is important that you forecast them so you will avoid taking money when it is not yet necessary. You may have enough money in good months, but you must also keep in mind that you should have enough cash in slow months.

Common Bookkeeping Problems And Their Solutions

Bookkeeping is often avoided because of the responsibilities that it entails, but in the long run, business owners consider bookkeeping a necessity. Everyday, business owners are plagued with too many worries, most of which is due to the issues with their finances left unchecked. When you intend to expand your business, its financial aspect is the first thing you need to check. Is it effectively managed? Do you have enough cash to grow your business? These questions are going to be relevant because they will provide you an insight on the direction you are going to take.

5 common bookkeeping mistakes and ways to deal with them:

1.Not reporting sales tax. It is a common effort in bookkeeping to neglect sales tax, but this oversight can create a serious problem in the long run because it is a common reason for penalties and fines. If you have incorrect data entry, your business can suffer from a higher total sales amount. Make sure you have accurate sales tax. Discuss these important details with your bookkeeper if you see any discrepancies in the financial statement.

2. Poor communication. Another reason your business suffers is when you and your bookkeeper do not have strong communications. It is necessary that you keep your bookkeeper integrated and involved with your business activities. This way, your bookkeeper will be able to create financial statements that reflect your business’ true operational needs. Discuss the means of communication which both of you can be comfortable with.

3. Inaccurately tracking expenses and income. A bookkeeper should have the knowledge of formal bookkeeping practices. If the person you hired knows nothing about these tasks, you will have difficulty identifying the category that your income and expenses fall under. When you have accurate records on a monthly basis, you are not only encouraging proper filing system but also ensure consistent and clean records.

4. Poor record keeping. Receipts and other important documents must be kept because they are going to play an important role to your business. When accurate records are maintained, there is an assurance that you are saving time and money on your income taxes. You will have proper documentation if your business will be audited by ATO. You will also have accurate records to present and prevent a possibility of tax penalty. The records must be checked on a regular basis to ensure that there are no irregularities. A bookkeeper should consistently provide a report that a business owner can check and interpret.

5. Mishandling petty cash. One of the reasons business owners have problems with keeping track of expenses is due to bad petty cash management. You can prevent losing track of your petty cash if you set up a system, which will allow you to track the cash. You can also buy a petty cash lock box, which you can use for keeping receipts.

Five Questions To Ask Your Bookkeeper

A business owner has the right to obtain information from the bookkeeper to find out if the business is still doing well. Your business may be in the right direction, but it can be a different thing once you scratch beneath the surface. If a business owner fails to check the records from the bookkeeper, it may be too late before you find out that you are falling behind your tax payment schedule and do not have a steady cash flow. This is indeed very unfortunate for a business owner, but the main problem is due to the failure to monitor the activities of a bookkeeper. As a result, you become clueless as to why your business does not give you the outcome you are expecting.

1. Is it possible to reconstruct reports so they are easy to read and aligned to my needs?

When you are reading financial reports that you cannot easily interpret, it is as though your head is in the clouds. Business owners may take time to obtain basic bookkeeping techniques and when they do, bookkeepers are expected to renovate reports so that they are much easier to read. If you find it difficult to read reports, your bookkeeper should be open to revising them.

2. Are my bookkeeping packages tailored to the needs of my business?

Bookkeepers should be aware of the needs of your business. Just because they are providing bookkeeping services does not necessarily mean that one size fits all. It is also their obligation set up packages that perfectly fit the industry your business is involved in.

3. Can you think of a way to reduce business expenses?

Due to inefficiencies of bookkeeping services, a business owner may spend more than usual. If a bookkeeper does not see the underlying issues of a business, the financial aspect of your business will sure suffer. Your bookkeeper should provide you a range of plans to reduce cost.

4. Are you speaking to my accountant on a regular basis?

A bookkeeper is not the only person responsible for the business finances but the accountant as well. This is why a good bookkeeper should liaise to the accountant to confirm updates. When a bookkeeper communicates with the accountant at least twice a year, they will be able to capture changes that took place in your business. The accountant will also give guidance and advice if there are changes made to the system.

5. What processes and systems have you created for my business to run smoothly?

These days, business owners are keeping up with the changes in bookkeeping. With that said, a bookkeeper should be able to recommend a system that will promote efficiency in every business transaction made. The use of bookkeeping software can make a huge difference not only in terms of getting the job done but also in ensuring that accurate information is entered.

These questions are going to be helpful in setting your expectations as a business owner. You will be able to know if a bookkeeper can provide your needs and help you achieve your goals.

Do You Need A New Bookkeeper?

A bookkeeper is going to be an essential entity of your business. They are responsible for ensuring that the financial aspect of your business is well taken care of. Some examples of tasks that a bookkeeper needs to carry out include filing tax returns, lodging timely payments, keeping receipts and releasing correct reports. In short, a bookkeeper makes the life of a business owner easier. However, when a bookkeeper fails to deliver on the tasks it promises, it is about time you rethink things.

A business owner may need to face the consequences of hiring an efficient bookkeeper if the problem is not addressed right away. There are warning signs that allow a business owner to identify the signs of an inefficient bookkeeper.

1. Financial reports are not submitted in a timely manner.

The financial report is one of the paperworks that a bookkeeper needs to keep an eye on. This report is time-sensitive because this is where business owners determine which direction their business is heading. When this essential report is not submitted in a timely fashion, the business owner is denied of the chance to go over it. When late submissions become a habit, you need to find out the underlying causes for these delays. Is it the lack of resources that deter a bookkeeper from submitting reports? If so, both bookkeepers and business owners must explore viable solutions.

2. The bookkeeper does not schedule a meeting to discuss financial reports.

An access to the financial report is important so you will keep track of your financial activities. When there is lack of information, a business owner will not know about the steps that need to be done in order to resolve bookkeeping issues. You have the right to know about the details of the financial report so you will be confident that ATO receives correct and accurate information about your business. Scheduling a meeting also allows you to correct mistakes, which can wreak havoc on your business especially when it comes to filing tax returns

3. Your bookkeeper is no longer committed to your business.

Commitment is important for a bookkeeper to succeed in carrying out bookkeeping tasks. Without commitment, a bookkeeper will feel as though the daily task is an obligation. When a bookkeeper is committed to helping your business get bookkeeping tasks done, a business owner will no longer have to worry about them.

4. Frequently receiving mails from ATO.

When mails from ATO are received frequently, you need to conduct your own investigation so you will know what really is going on with your bookkeeping task. Essential details must be handled properly and recorded on a regular basis. You may need to schedule an appointment with the bookkeeper so you will know what is going on with your finances. If they cannot provide satisfying answers, you may need to look for a more reliable bookkeeper to do the job. Your business is more likely to suffer if you are going to allow an inefficient bookkeeper to take care of your financial activities.