5 Reasons Small Business Needs Bookkeeping

Tracking expenses is essential to all businesses and hiring a bookkeeping service is one way to make this task much easier. However, for small businesses, bookkeepers are not a priority because of perceiving bookkeeping as an additional expense. If you rely on DIY bookkeeping, there will be more room for mistakes you may tend to overlook essential information. There are good reasons bookkeeping is a must for your small business:

1. Transactions are classified.

Accuracy is important when generating financial report and spending time keeping books must also be a priority. A bookkeeper is capable of entering and classifying transactions as part of your pre-tax planning. Bookkeepers will also check your books regularly so you will not worry about payments come tax time.

2. You save time.

There are many problems associated with DIY bookkeeping such as failing to focus on other more important areas of your business as you are stuck in entering transactions into your ledger. If you let bookkeeping professionals take care of this task, you can save yourself from spending too much time on keeping books. These professionals have a sound knowledge with bookkeeping software and you will not also miss other great opportunities.

3. Manage payroll easily.

Whether you are a sole trader or in a partnership, it is important to note that as your business grows there will be additional tasks that you need to handle and one of which is payroll management. This is one aspect of running your business that you should not ignore. It includes creating checkes and making sure that income taxes are deducted correctly. You cannot afford to make mistakes. This why hiring a bookkeeper is important when handling payroll.

4. Prevent paying bills late.

It is easy to overlook bills when you are busy. Paying your bills may be a simple task, but it is mostly one of the obligations often forgotten. It can result in major and costly consequences. If you hire a professional to remind you of upcoming payments, late payments will no longer cause problems and worries. You just need to give access to your online accounts so the bookkeeper can check statements and even make payments online.

5. Generate reports when you need them.

Many small business owners are not completely aware of their true financial state. This is because they do not have access to the financial reports. Bookkeepers must make reports available to business owners on a bi-weekly basis so business owners will know how their business is doing. Reports also provide an idea where business stands. Problems are also prevented when financial reports are regularly checked.

Can Business Fail Because Of Bad Bookkeeping?

Bookkeeping may appear to be a small contributing factor to the success or failure of your business, but since keeping books involves keeping your cash flow in check, knowing you have enough money on bank to sustain the growth of your business gives you greater peace of mind. There are business owners who remain complacent about their business because of the profit obtained. However, a profitable business does not guarantee a steady flow of cash. Profit and cash flow are separate entities. So how can bad bookkeeping hurt your business?

1. It creates credit problems.

Small businesses need to borrow money from creditors to keep the company alive. Once approved, you need to make sure that you have the ability to repay debts in a timely manner or as agreed. Only a savvy bookkeeper will enable you to pay your debts without shouldering late fees and interest rates. Credit problems can cause you to settle for less favorable payment terms and suffer the loss of credit. It will be difficult for you to regain the trust of your suppliers and vendors if this happens because you failed to keep an accurate record.

Keeping track of your cash flow is also your bookkeeper’s responsibility. You should know when your receivables will arrive and when your bills should be paid.

2. It leads to legal problems.

Improper deductions and late or unpaid taxes are reasons why small businesses are faced with legal problems. If your funds are not enough to pay creditors, there is also a great possibility that you will be sued especially if your bookkeeper is not familiar with tax policies. A good bookkeeper provides annual bookkeeping procedures so you can handle your payroll, sales and income taxes.

3. It causes you to lose sales and profits.

If you always miss payments or fail to pay your bills on time, it results in losing access to vendors and suppliers. It is easy to lose sales when you cannot provide the service or products your customers are asking for. If it takes time for your company to deliver goods, this alone can cause your clients and customers to find other businesses that can provide their needs. It will be difficult for customers to go back to you if they have already used a new company.

4. It decreases opportunities.

When you need to reduce debt or increase your marketing, accepting opportunities to grow your business has to take a backseat. This happens when you have less money because your bookkeeper has failed to provide accurate financial reports. If you do not ensure accurate bookkeeping, you will also lose the ability to run your business efficiently.

Bad Bookkeeping Habits And Their Impact On Your Business

Habitual neglect of bookkeeping duties eventually affect the overall performance and condition of your business. One neglect can form into a habit, which triggers red flag.

1. Not Setting Due Dates and Deadlines

Every business needs to get detailed information about monthly reports. If your bookkeeping is late and inaccurate, the negative result will no longer come as a surprise because you failed to set due dates and deadlines. You need to know when reports will be delivered. You do not want to take a wild guess which direction your business is going don’t you? Plus, ATO can chase you for all your late payments.

2. Not Organising Receipts

A piece of paper can turn into one of your worst nightmares when the ATO comes knocking on your door. It is highly recommended that you organise and keep receipts for up to 5 years. If you have stacks of invoices on your desk, not knowing what to make of them, you need to start including ‘organise’ in your vocabulary.

3. Not Managing Payroll Taxes

The world of payroll management can be complicated that you might find yourself completely alienated by the process. Get someone to manage your payroll taxes to spare yourself form the headache of dealing with it. However, do not go totally hands-off as you still need to check if your bookkeeper is doing things right.

4. Skipping Regular Bookkeeping Training

The only thing constant in this world is change and keeping up with the changes in technology is the only way to stay relevant. Your bookkeeper may still be spending hours burying their heads in stacks of papers when there are easier and faster techniques to run a report. It could have been done better, had you thought about giving your bookkeeper a regular training on the latest bookkeeping regulations and cloud software.

5. Not Integrating Data

What better way to manage data than utilising cloud technology? Business owners are plagued by financial reports because the process that running them entails can be quite tiring. This is where data synchronisation becomes necessary because it reduces error and even improve your time management. What’s not to love?

6. Not Standardising Monthly Financial Reports

The reason for standardising your financial report processes every month is to ensure that you run the same report  on a monthly basis. Standardised reports ensure you track your financial data effectively.

7. Not Keeping Track of the Invoices You Sent

Your business may generate profit, but without a steady flow of cash, the money in your business is still not enough to shoulder monthly expenses. You should know when you will get paid because monthly expenses do not have a ‘pause’ button. You will continue to pay for them regardless of your financial condition.

4 Tips About Reading Financial Report You Can’t Afford To Miss

Reading a financial report provides you information on the financial performance and condition of your business.

Just the thought of preparing a financial report is a challenging job let alone reading it. If you do not have any sound knowledge of bookkeeping, the numbers you see on the financial report will surely be foreign to you.

If you want to grow your business, you need to make sure that it is ready for the transformation. What better way to determine the financial health of your business than to read the financial report. Here are five tips to consider when reading a business financial report.

Decide what you are going to read

When you are reading a financial report, the first thing you want to know is how your business is doing. As the report contains lots of information, it can be very difficult to identify the section you should pay attention to. The report shows you the trend charts, financial statements, historical summaries and much more.

If you do not have the luxury of time to read the entire section, look for the highlights section. This section will give you a summary of the main developments of your business. You will also know the steps to take to improve your business.

Gain a basic understanding of accounting

While it is the job of your bookkeeper and accountant to prepare your financial report, this does not mean that you are no longer required to read the financial statements. You will still need to make a conscious effort to interpret these reports because they can play a big role in helping you decide of the direction your business will be taking.

Know your profit performance

There are many ways your business earns profit such as making sales and keeping expenses less than your sales revenue. You will be able to analyze profit performance by checking your sales revenue. Is it higher than the previous years? Do you know the gross margin ratio of your business? You will also have to keep in mind that judging profit performance should be based on general economic conditions.

Check your cash flow

Cash flow is important to business owners. Even if you are making a profit, this does not necessarily translate to having a steady cash flow. There are various ways a business can obtain cash, such as  selling off some assets, borrowing money or getting shareowners to put more money in the company.

What Does Your Financial Health Look Like?

It is not enough that you run a profitable business as you have to make sure that you keep an eye on your business’s financial health. There are some key questions that you need to answer for you to verify if it is time to make some changes to your current business strategies. Your business may be doing well, but without a financial statement to give you an idea of your financial standing will still result in business losses.

Do you accomplish your monthly goals?

One indicator that you are on the right track is when you hit your monthly targets. You can determine if you are ahead or behind your monthly goals by comparing your month-to-date sales. Your expenses with your end-of-month goals are also worth checking because they also play an important role in your business. This technique can be used for you to find out if it wise to grow your business.

Are you falling behind your payment schedule?

Your accounts payable and cash balance must also be taken into consideration and a profitable business does not give you an assurance that you have nothing to worry about. Keep in mind that a profitable company also runs out of cash, but you can still prevent problems with payment schedule by ensuring that you keep your monthly burn rate and major payables in check. With this technique, you will be able to pay your bills on a regular basis.

Do you have a steady cash flow?

If your business always faces problems with cash flow, this is a cause for alarm because a negative cash flow can greatly affect your business. Problems with cash flow indicate that you are not regularly monitoring your expenses. You can prevent issues with cash flow by tracking monthly ongoing expenses and making a comparison of last month’s actuals to your projections. Make sure you involve your bookkeeper in your discussion so you will have an idea if there are still some parts of your business that needs improvement.

Is your cash enough to keep the business on its feet?

Having enough to get to break-even is also essential because this is deemed as a major milestone where adjustment and regular monitor are required. Your net profit and business plan projections must be checked regular as these can give you a better picture of your financial health. A bookkeeper should prepare a financial statement for you to review. If you do not have enough cash, cutting your expenses is one way to raise additional cash.

The Role Of Bookkeeper In Growing Your Business

Growing your business is a tough decision as you need to look at all of the aspects of your business. Business growth is a sign that you are doing good at managing your business, but just like other successful companies, it requires team effort to accomplish your business goals. A bookkeeper is essential in every business. You will not realise their importance until you decide to grow your business.

More cash and reduced debts

A streamlined invoicing system is one of the benefits of hiring a good bookkeeping service. You are not ready to grow your business if you have trouble improving the flow of money into your business. When you help your bookkeeper, you will be able to get help in reminding your clients for their payments for the products and services that your business has provided. Aside from keeping your cash flow in check, a bookkeeper can also help you reduce the risk of cash shortfalls by helping you deal with credit control.

Good decision making

Although bookkeepers are not the ones to decide for you, they are going to be a big help when it comes to preparing accurate and error-free financial reports. These financial reports will help you make decisions for your business. Business owners refer to the financial reports when it comes to analysing if the business is performing better than the previous months. When the financial reports tell you where your business is heading, it will not be impossible for you to grow your business.

Resolved financial issues

It is inevitable for businesses to face financial challenges but a good bookkeeper can help you handle challenges. A bookkeeper provides financial data analysis and identifies issues that affect the development of your business. A good bookkeeper can also present tailored solutions that can resolve financial challenges.

Running your business is no walk in the park let alone growing it. However, if you have a good bookkeeper to help you put a good bookkeeping system in place, the goal of growing your business will not be impossible to accomplish. This is why as you decide to hire a bookkeeper, make sure you take qualifications into consideration so you will not end up choosing the wrong bookkeeper. While it can be challenging to hire a suitable bookkeeper for your business needs, taking time to get to know a prospective bookkeeping professional can help you make a sound decision. Even if it is only a small business, a reliable bookkeeper can make a difference.

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.

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.