You have a lot of responsibilities to take care of as the owner of a business, from running the day-to-day operations of your company to interacting with clients, developing marketing strategies, building professional relationships, and ensuring that everything runs smoothly. Finding the time to organise your financial spreadsheets, perform an in-depth analysis of the numbers, and manage your cash flow can be challenging.
The reality is that properly managing your books, maintaining control over your finances, and ensuring that your company complies are all essential to achieving long-term success in your business.
Therefore, before you spend another late night reviewing spreadsheets, I have compiled a list of the 12 most crucial bookkeeping tips that every company should be aware of.
And remember, you can always come to us for assistance if things get too complicated! We are book-keepers in Melbourne who can organise the financial aspects of your company.
1. Always keep your personal finances and business finances separate.
At first glance, it may not appear to be a significant issue if you combine your personal finances with your company's. However, every company ought to have its own distinct business bank account that is distinct from any personal bank accounts that may also exist. Depending on the structure of your company, having a separate bank account for your business may be required in many instances.
You will be able to save a lot of time, effort, and headaches by using this separate account because it will make it much simpler for you and your bookkeeper to sort through the purchases and sales that are pertinent to your business.
2. Accounting processes should be computerised using cloud-based software.
We are fortunate to live in an era where cloud-based accounting software gives you, as the owner of a business, the ability to access the information about your company whenever you feel the need to do so. Because of technological advancements, it is now possible to manually calculate amounts, sort through piles of paperwork, and check spreadsheets every single month. The majority of the laborious work can now be done for you by cloud-based software.
Accounting software can send invoices to customers at the appropriate due date, track your incoming and outgoing expenses, and generate reports on your company's cash flow all on its own. There is a wide variety of software available to choose from. The alternative that simplifies your life is the one that you should go with, but if you aren't sure which choice is best for you, you can always consult with a bookkeeping professional who can provide you with enlightening guidance.
3. Establish A Record-Keeping System That Is Simple To Follow
Every transaction that your company completes should be recorded and organised in a way that is straightforward for you to maintain to ensure that your cash flow remains on track at all times. You can better predict future opportunities for your company if you keep track of all business records, including invoices, receipts, and expenses. This will also help you maintain tax compliance if an audit is conducted.
Paper receipts can be easily digitised, but if you prefer to keep paper records instead, they should be stored in a cabinet that can be locked and secured somewhere. They should be organised according to a straightforward system. It is also highly recommended that you maintain a backup copy of your records if you lose any of them.
You can also forwards electronic bills directly to your online bookkeeping system for record storage and reconciliation if you use most cloud-based bookkeeping software. This allows you to scan receipts using your phone instead of physically putting them in the system.
4. Set Reminders for Important Deadlines
As a business owner, the majority of your time is spent reacting quickly to a variety of different challenges. Because you have so much on your plate, it is simple to lose track of the dates on which you should pay your GST, payroll, and the regular invoices for your business.
By setting reminders for yourself, you can avoid missing important deadlines, which could result in a monetary penalty or an irritated partner. You can accomplish this task by using the online version of your email calendar, or even your smartphone.
If you check your physical calendar regularly, even jotting down notes a few days before the deadlines can help you stay on track with everything that needs to be done.
5. Create a paper trail for the audit
Even if you keep meticulous records of your financial transactions, you risk being selected for an audit by the relevant tax authorities. You are required to leave a paper trail behind you that documents everything that you have purchased and everything that your customers have paid for from you.
An audit trail is essentially a selection of documents that prove the transactions recorded in your books are, in fact, true. These documents are kept chronological to make the audit trail easier to follow. If you have any problems with things like tax inaccuracies, missing source documents, or missing transactions, your audit trail will help you to retrace your steps and figure out what went wrong.
6. Be Aware Of Your Organization's Expenses
When you first start operating your business, it can be challenging to anticipate the kinds of costs that you will have to pay and to know which of those costs are tax deductible. For instance, you can deduct from your taxes any costs that are directly associated with the operation of your company and with the creation of income. If, on the other hand, you purchase something that is only for you, you won't be able to add it to any of your accounts.
When you combine your personal and professional finances, you won't be able to claim reimbursement for everything you spend simply.
You are responsible for researching and comprehending the subject matter contained within the Australian Tax Laws. If you are uncertain as to what constitutes a deductible purchase, you should get in touch with either a qualified accounting professional or the tax department in your community.
7. Create Regular Reports
Not only is it necessary to maintain accurate financial records for tax purposes, but also for other reasons. It is much simpler to carry out routine checks on your financial situation if you maintain accurate records of the cash that enters and leaves your possession. You can ensure that all of your customers pay their invoices on time and prevent any gaps in your reporting if you use the appropriate accounting software.
Even though it's a good idea to perform monthly checks, you should also consider conducting a thorough audit of your accounting and bookkeeping records at the end of each quarter. When doing so, you should pay close attention to patterns such as falling or growing sales, significant expenses, or evidence of customers who are paying late. You can better plan for improved cash flow in the future if you conduct an accurate analysis of your numbers.
8. Keep an Eye On the Cash Payments
When you first start building your company, it is easy to forget about this requirement, but you must record any cash payments received. Even if it is for business purchases, any cash that is received by the company must first be deposited into the company's bank account before it can be spent. It is tempting to make immediate purchases with the cash to satisfy an urge, but doing so can easily throw off your bookkeeping system.
When you are entering cash payments, it is essential to remember to make a note of which customer paid to avoid having to pursue that customer again in the future. Consult with a bookkeeper if you are unsure how to manage the details of a cash payment on your accounting software. A bookkeeper can assist you in correctly setting up and using the software.
9. Budget for Tax Payments
There are not many things in life that are more satisfying than watching money come in through your own business. You may have noticed that your business is beginning to turn a profit and have decided to invest as much of the money you've made in addition to that as quickly as you can. It is a fantastic way to keep the momentum going for your company to invest the profit in product development, marketing, and other growth strategies; however, you should not jump in too quickly.
Keep in mind that at the end of the year, a portion of your income will need to be allocated towards paying tax-related expenses. To guarantee that you will have sufficient funds remaining after paying your monthly expenses, you should put aside at least some of your total income – perhaps twenty per cent of it. Use a separate savings account if you find it challenging to keep this money in the account associated with your company.
10. Learn the Fundamentals
There is a widespread misconception among owners of businesses that if they hire an expert to handle their bookkeeping, they do not need to educate themselves on the laws governing taxes and accounting. Even if you have an automated accounting software solution, you might still have that feeling. However, even though these assets lessen the likelihood of you having issues with your taxes, it is still in your best interest to educate yourself regarding the requirements imposed by the tax system.
Visit a website and read up on all the information that might be relevant to the kind of company that you run. Keep in mind that the rules governing registered companies are different from those governing sole proprietorships and partnerships. Consider whether or not you are paying corporation tax, whether or not you are registered for GST, and whether or not you are paying any other regular fees. If you have even a basic understanding of how taxation works, you could avoid incurring some severe penalties.
11. Outsource to a Professional Bookkeeper
Cloud-based accounting systems, such as Xero, Quickbooks, and Reckon, make it simpler for business owners to handle their accounting responsibilities without exerting a great deal of additional effort than is necessary. However, this does not excuse you from using a qualified bookkeeper in your business. The benefits of outsourcing bookkeeping to an experienced professional are many and include the following:
- saving you valuable time
- You can save money by ensuring that your books are always up to date and organised, allowing you to meet all of your compliance obligations, including your BAS and tax obligations.
When your books are professionally organised, you have a clear picture of how your company is performing financially, which makes it simple to make essential decisions regarding your company because you have all the relevant information at your fingertips.
12. Make Your Books a Priority
Lastly, keeping track of your business's expenses might not be the most exciting aspect of running your own company, but you still need to make it a top priority. Your entire life can be turned upside down by something as simple as an error on a tax return or a poorly managed set of invoices in your bookkeeping records. Make it a priority right from the start to formulate a plan that will enable you to maintain an organised and up-to-date set of books.
Even though you don't necessarily have to balance everything at the end of each workday, you should go through all of your financial information at least once a month to make sure everything is in order.
Commit to Better Bookkeeping
The most important thing is to have a good bookkeeping strategy, regardless of whether you do the majority of your accounting work yourself or whether you hire a professional to do it for you. If you follow the advice presented above, you will have a better understanding of the cash flow of your business, fewer problems with the tax system, and more expansion opportunities.
It is indispensable for owners of small businesses to have a reliable accounting strategy. Keeping an accurate record of your company's financial transactions is required for this step. Your long-term expansion and financial security will benefit from your vigilant monitoring of the financial transactions and bank accounts related to your business. This is the reason why we have put together this concise guide to accounting for small businesses in Australia.
Requirements imposed by the Australian Tax Office
The Australian Tax Office has several prerequisites that must be fulfilled (ATO). If your company has fewer than 20 employees, you must use the Single Touch Payroll software to file reports with the ATO. In addition to this, you are required to submit your income tax return for the period beginning July 1 and ending June 30. (tax year).
According to the requirements of the ATO, business activity statements must be submitted on a monthly, quarterly, or annual basis by all companies. This is for determining things like the tax on goods and services, the tax on withholding, etc.
If your company has fewer than 20 employees, you must use the Single Touch Payroll software to file reports with the ATO.
What should you make a note of in the bookkeeping for your small business?
- taxable receipts for goods supplied
- Forms for making purchases and recording costs
- Invoices for taxation
- records for the year's end
- Documentation of purchases and revenues (e.g. receipts, cash sales)
- Bank statements
- Documentation concerning employees (e.g. payroll statements)
Additional advice for accounting for small businesses
- Accounting books should always be kept close at hand for quick access.
- Make sure that your entries are in chronological order, and use a bookkeeping method that uses double entries.
- Make any necessary edits to the entries at the close of each accounting period.
- Maintain all of your financial records in the master ledger.
- Keep your records of accounts payable and accounts receivable in separate locations.
Accounting books should always be easily accessible for tracking financial transactions.
Step-by-step small business accounting
Establish a bank account for your company: Always keep your personal finances separate from your business finances; this is why having a separate bank account is so important.
Choose a method of accounting with great care: Choose either the cash basis of accounting, which records income and business expenses when cash is received for your product, or the accrual basis of accounting, which records income at the point of sale rather than when cash is received for the product. This indicates that income is considered, even if the funds themselves have not yet been deposited into your account.
Create a system for the bookkeeping of your small business: Investing in (small) business accounting software is an essential step for most companies because it enables them to centralise all of their financial statements and worksheets in a single location for easy access.
Investing in (small) business accounting software is an essential step for most companies because it enables them to centralise all of their financial statements and worksheets in a single location for easy access.
Upkeep of your organisation's bookkeeping and accounting system
Daily maintenance
Checking the ledgers of your company should be the first thing you do every morning, as recommended by us. Examine the current balance of your bank account and make an educated guess regarding the amount of income that is likely to be generated throughout the course of the day. Accounting for small businesses must place a significant emphasis on maintaining a positive cash flow.
Weekly maintenance
We strongly suggest that you complete the following tasks before the end of each work week: record all transactions in your accounting software or spreadsheet; document and review unpaid bills, receipts, cash payments, and checks; pay invoices that are owed to your suppliers; record the transactions that you pay; and finally, pay the invoices.
Maintenance on a monthly and quarterly basis
If you are the proprietor of a small company, we strongly suggest that you complete the activities listed below monthly:
- Examine the current stock you have and, if required, order more.
- Conduct an audit of past-due accounts receivable and pursue payments.
- Handle the payroll duties.
- Make sure you are paying the appropriate amount of tax to the ATO.
- Examine the balance sheets to understand how your company handles its assets and liabilities.
- Check your profit and loss statement to see how you stack up against your quarterly budget and make any necessary adjustments.
Annual maintenance
Preparing the business activity statement for the ATO will be the primary accounting task that needs to be completed at the end of the fiscal year. In addition, we would recommend checking all reports and financial statements for the company, ensuring that they are accurate and noting any areas that could use some improvement.