One of the things that a business owner needs to ensure is hiring a professional and experienced bookkeeper.  While this can be a challenge to those who own a small business, a bookkeeper who knows how to carry out the most crucial task in a business can provide business owners much greater peace of mind. However, there are instances when a business owner loses track of the business’ day-to-day transactions and relying heavily on the information that the bookkeeper provides is the only available option. Unfortunately, business owners are taken by surprise once they see financial statements in chaos. Where exactly does the problem lie?

Common mistakes bookkeepers commit:

1.    Failure to reconcile bank accounts for long periods of time. This mistake can be costly if not properly addressed. If you are the type of a business owner who leaves everything to your bookkeeper, without taking time to evaluate or check the financial statement, duplications in entries become unavoidable.

2.    Unmonitored cashflow. Business owners do not have the time to update bank and credit card reconciliations, payment processing and invoicing of debtors. This is why a bookkeeper needs to regularly update these records. Monitoring cashflow regularly allows the business owner to receive update of their current position so contingency plans can be formulated for future business development.

3.    Making a mistake in assigning accruing annual and personal entitlements. Bookkeepers have the ability to set up the entitlement calculations and superannuation in the accounting software and their job includes ensuring that the numbers are calculated accurately. As a result, employees are paid more than the 9% super based on their ordinary times earnings. If this is not corrected immediately, it can become a costly mistake for both the bookkeeper and the business owner.

4.    Unable to understand when Fringe Benefit Tax (FBT) should be applied. Old bookkeepers had erroneously entered wrong information causing businesses to suffer due to huge ATO debt. This could have been avoided, had the bookkeepers understood FBT and the schedule that the tax must be applied.

5.    Posting GST transactions incorrectly using the accounting software. Another mistake that can cause a diabolical mess is entering the wrong information in the accounting software causing figures to mix up. Dealing with GST requires accuracy to ensure that the Business Activity Statement (BAS) that is lodged with the tax office contains the correct information.

6.    Failure to categorise expenses and income. The profit and loss spreadsheet reports are one of the essential tools that bookkeeper use to know the business’ current standing. If the bookkeeper fails to review the reports and correct entries, reports become more vulnerable to a myriad of mistakes.

7.    Overlooking tax and compliance obligations. Bookkeepers may not be completely aware of lodgment dates and compliance obligations that business owners fall behind payment schedule. These dates are critical to every business and a bookkeeper needs to be aware of these important dates.

8.    Not filing invoices and receipts. Aside from financial statements, bookkeepers must also keep a record of receipts and invoices because they allow businesses to keep track of sales and services rendered. A bookkeeper must have a simple filing system that provides business owners and bookkeepers access to the essential business information.

The profit and loss report is one of the essential reports that most business owners hold on to in order to find out which direction their business is heading. Going over the numbers require accuracy in interpreting data. There should be no room for mistakes because bookkeepers base their recommendations and suggestions on the report. In essence, a Profit and Loss Report is a determining factor whether a business is making money or losing it. While most business owners leave this task to the bookkeeper, there are still some business owners who do not know understand the report. If you are heavily relying on your bookkeeper without taking time to look at the report, it could only mean that you are not actively planning your business or budgeting.

Interpreting numbers is a bookkeeper’s second nature, but to some business owners, they are often dazed and confused because all they know is that these numbers are only meant for forecasting where there business is going. When figures are good enough, it is easy to overlook some other details. Unfortunately, business owners are missing the point because financial reports offer more than just the figures. They are also crucial to making business decisions that can contribute to the business’ success. If you fail to regularly monitor the performance of your business, it may not take a while for you to discover that your business is already losing money.

Income

The Income refers to the total of sales or invoices you have invoiced over a selected period of time. This amount is also GST exclusive and considered as accrual based. Keep in mind that the Income amount does not include investment income as this falls under a section known as ‘other income’, which is found on the bottom of the report. Your income is also referred to as ‘turnover’.

Cost of Purchases or Goods Sold

The Cost of Purchases and Goods Sold refers to the total of all the expenses you have incurred. These expenses have directly contributed to your income. The purchases are the inventory items that the company has purchased and sold. The Cost of Goods Sold are the items for sale including the freight charges for the items and the costs incurred to bring the purchased item into a saleable state.

Gross Profit

The Gross Profit is the income less the Cost of Goods Sold and purchases. As a business owner, you will be able to understand the markup percentages by referring to the gross profit. In a report, this is expressed as a percentage of income. 

Expenses

Aside from the Cost of Goods Sold, the expenses also provide you figures of other business expenses. The expenses are categorised according to your industry and it includes operating expenses such as rent, power, telephone and many others.

Net Profit or Net Loss

The total net profit or loss refers to the total of income, less cost of goods sold or purchases less expenses. The business makes a profit if the figure is positive. A negative figure indicates that a business is losing money.

Another important note to consider is that the profit and loss report is an indicator of the amount of money you have in your bank account. Your profit may be high, but your cashflow is low. However, you should also keep in mind that a healthy cash flow does not necessarily mean healthy profit.

Spending is necessary in every business, but it should come with a plan. The failure of assessing your spending habits may result in getting a zero balance in your bank account. The rule of thumb is to spend the least amount of money while obtaining the best possible return. This is where budgeting comes in. For you to manage the financial aspect of your business, a cost-effective way of using your money is a must.

You may not be doing things right if:
Bills Are Not Paid In A Timely Manner 

While it is acceptable to miss out on accomplishing some items on your to-do list, not paying important bills is a different story. Set aside money for paying your bills and budgeting is a good way to prioritize your expenses. It should start with the most important payment obligations such as tax payment. If you have to make credit card payment, you should keep a budget for funds are ready to use again.

Your Business Is Showing Clear Signs Of Overspending 

Your business is making a profit if you earn more than you spend. However, this does not mean refusing to spend money even when it is already considered necessary. It only means spending your money on necessary expenses and budgeting is going to help you monitor your expenses. 

You Have A Long List Of Unresolved Obligations 

It is time to rethink how you spend if you always find yourself depleting your funds. A long list of unresolved obligations only means that something is not right with your spending habits. You should know the difference between going out of business and growing your business. Your creditors and the people you are doing business with may lose faith in you, so you need to make sure that your problems are resolved. 

You Have Trouble With Your Petty Cash 

If your account ends up unbalanced at the end of each week, there might be part of your expenses that you need to review or re-assess. If you cannot identify what the problem is, you might be having problems reconciling your petty cash with your business accounting. The lack of budgeting can leave your financial activity in chaos. Not resolving issues with your petty cash only means that you have no idea about the amount of money you have. You also allow your spending habits to wreak havoc on your overall financial status by overspending. Make sure you are in control of your petty cash and never take money out of the rest of your budget if it is intended to cover items you have previously provided.

Poor financial management can increase the likelihood of losing your business. There are businesses that are forced to close because of not keeping an eye on the expenses. Ignoring payment obligations and spending money on unnecessary items can create a serious impact on your business. If you cannot properly identify where the problem lies, a bookkeeper can teach you wise financial management. Closely monitoring your financial activities helps you identify problems before it gets worse. You will also be able to know if changes should be made with your spending habits.

For business owners, there are various obligations that need to be fulfilled and once Australia Business Number or ABN has been issued, you need make sure that you do not commit any violations. Although there are only a few reasons your ABN can be cancelled, the process of obtaining ABN can be difficult. One of the reasons your ABN can be cancelled is when your business lacks profitability. For instance, a business that is no longer gaining a profit can have its ABN cancelled. ATO monitors businesses that can potentially have their ABN cancelled.

How To Avoid Cancellation Of ABN

When it comes to growing your business “one size fits all” does not apply. In fact, there is no special formula in ensuring profitability. You just need a dedicated team that can help you run your business in an efficient manner. You need to spend less and have an action plan that can help you promote effective management.

Your bookkeeper will also play a huge role in helping you avoid ABN cancellation. If you want to improve your company’s outlook, a positive cash flow is necessary. Although this is not the only technique to make your business more profitable, a steady cash flow can definitely make a difference. A bookkeeper can also help you monitor your business so you will know if something needs to be fixed. As a result, you will be able to make plenty of room for growth and you can also make necessary improvements.

A competent bookkeeper should help you separate assets from your liability. A bookkeeper is also responsible for organizing your financial statements and reports so you can easily determine if your business is generating a profit or a loss. When your business has proper bookkeeping, you can identify if your business is really doing well.

A cancelled ABN can be stressful, but this is definitely avoidable if you know how to take care of the financial aspect of your business. To ensure your business continues to be in operation, make sure you evaluate various financial factors.

• Re-evaluate your spending habits.

Assess how much you are usually spending and find out if your purchases are based on impulse. You may need to implement new measures if there are unnecessary spending going on. You can speak to your bookkeeper for some recommendations if you wish to re-evaluate your spending habits.

• Consider your business goals.

Ask yourself if you have already achieved some of the goals you set when you opened your business. If all of these goals have already been achieved, you need to make new ones. If there were goals that you have not accomplished, make sure you know the factors that hindered you from achieving them. You should also make necessary changes such as formulating some techniques so you can effectively achieve your goals.

• Establish new connections.

If your business has already been established, it is the best time to make new connections. You can build new connections if you attend networking events. A business with a strong system is more likely to get ample support during tough times.

• Reconnect with your associates.

As you build new connections, you should also reconnect with associates as they can help you obtain new approach that can make you improve your business and prevent ABN cancellation.

Even if you have just opened a small business, it does not necessarily mean that you cannot survive or emerge victorious in your chosen business niche. While it can be a series of trial and error, learning from your mistakes will hone your business management skills. Among the various business aspects, the financial aspect is often the target for mismanagement. A simple mistake such as overlooking the correct details on a statement can create a deleterious effect on the outcome of your finances. Before problems with your record could get worse, you should be careful with your financial activity and avoid committing these mistakes:

1. Not Taking Feedback Seriously

Getting advice or feedback from your bookkeeper can hurt your ego if you have not prepared for it, but as a business owner, you need to take your bookkeeper’s opinion especially if you are still trying to gauge your business. The feedback from your bookkeeper can help you take the right direction if you listen carefully.

2. Not Keeping The Receipts

If you are already familiar with your financial activity and you have estimated your expenses, throwing away your receipts seems like a natural thing to do. This may not be an issue at first, but come tax season, you will realize their importance. Never toss out receipts as they are part of the record keeping process. Save them in a file or give them to your bookkeeper for safekeeping.

3. Not Focusing On A Niche

Your business will not prosper if you do not consider sticking to a niche. Marketing is indeed expensive. This is why you need to spend your marketing budget in such a way that will reap positive results. Make sure you only focus on a niche that your product can satisfy. Never concentrate on people that are far from becoming your target market because you will not only waste your time but your money as well.

4. Not Giving Importance To Making A Budget

If you go to a battle unarmed, you are most likely to lose. The same is true when opening a business. You need to have a plan of action so you can calculate the adjustments you need to make. You won’t know the direction you are going to take if you don’t have a financial road map. You will also find it difficult to measure or track your progress.

5. Failure To Hire A Bookkeeping Professional

For business owners who have completely understood the nature of their business, they will sure realize the importance of a bookkeeper in leading the business in the right direction. New business owners are often concerned about the service cost, but you should also pay attention to quality. Choose a good bookkeeper and never fall prey to those who offer the lowest price, the result may not be desirable.

6. Not Analyzing Your Start-Up Costs

Your initial capital is important when starting a business. If you have not analyzed your capital, you can wreak havoc on a solid operation. You should keep in mind that positive cash flow does not immediately take place. You need to observe and make a wise investment  so your business will have a positive direction.

As a business owner, you will be asked to run through your PAYG (Pay As You Go) payment summary and when you have nothing to present, it can spell trouble on your part. It is easy to get sidetracked by other business obligations and forget about the payment summary. You may consider these summaries less important especially when you lodge timely payments. However, there can be instances when you need to file a payment dispute and if you don't have any concrete proof to show, necesary corrections and updates cannot be made. 

What every business owner should understand about PAYG?

 There are two types of PAYG that every business owner must be familiar with: the first one is referred to as Pay As You Go Installment or PAYGI. This refers to the tax installment payments business owners make to the ATO. The second one is called Pay As You Go Withholding or PAYGW. This refers to the tax that employers or business owners collect from payees, workers or employees. The summary provides the payment made and the amount withheld throughout the financial year. 

The importance of payment summary to your business:

 Not everyone has a sharp memory to remember the payment made by the employees. Business owners are often busy on other tasks that tracking payments become the least of their priorities. With PAYG payment summary, it will be much easier to take note of the payments regardless of the date the payments were made. If there are discrepancies on the information, erroneous entries can be corrected right away. 

The benefits of keeping a copy of PAYG payment summary

1. The process of filing taxes becomes much easier.

When it comes to filing your taxes, accuracy is going to play a huge role to ensure a stress-free process. If you already have a payment summary, there is no need to do some calculations as figures are available. You are less likely to overlook essential details such as withholding taxes.

2. A detailed accounting information is obtained.

You can get very specific information about each payee right off the bat when you have a copy of PAYG payment summary. Their tax numbers, tax liablities, salary and earnings are available. In case payees need to gain access to the relevant information, you can provide what they need easily. 

3. It will be simpler and faster to generate reports.

The fact that PAYG information has already been sorted can save you a great amount of time generating reports. Since the information for each payee is available, discrepancies can be spotted easily. 

4. You can answer queries accurately.

If payees are going to ask about under or over-payments, you know where to get the answers from. The summary can also remove doubts especially when it comes to deductions. If you are being audited, the summary can help you stay on the right track. The request for accounting records can also be reduced when the summary is available. As a result, financial transactions become more efficient and errors are effectively reduced. Not only do you spend less time gathering data, but you also complete the task in a timely manner.

With the bookkeeping software stealing the limelight, is this already the end of bookkeepers’ career? For sure, every business owner relies heavily on the modern advancements of technology to accomplish daily tasks quickly and easily. However, bookkeeping software is not the be-all and end-all of every business transaction. No matter how advanced the software in carrying out bookkeeping tasks, they still have glitches that can take a large chunk of your time if you choose to fix these errors. These days, people rely on real-time information and this is one of the benefits that cloud software provides. The information you need is available right off the bat and the process isn’t time-consuming. 

The allure of accessibility, convenience and speed often make bookkeeping software more attractive to business owners. Gone are the days when you have to check a pile of receipts and enter them into the database manually. Everything is replaced by a microchip that does all the bookkeeping jobs instantaneously. However, the success of a company does not just depend on bookkeeping software and with that being said, a reliable bookkeeper will still play an important role to the company. In fact, software and bookkeepers make a great tandem. You just have to know how to play your cards right.

How to utilize bookkeepers in a world of modern technology?

Just because entrepreneurs are relying heavily on bookkeeping software does not necessarily mean that businesses are formally saying goodbye to bookkeepers. In fact, a bookkeeper can still continue to stay in the game so long as the skills required are present.

• Create a solid understanding of bookkeeping fundamentals.

If you only have basic knowledge on bookkeeping, there is only a slim chance that you will emerge victorious in a stiff competition. Attempting to step out of your comfort zone and do more than just gaining knowledge on QuickBooks can help you acquire an edge. Take it a step further by obtaining useful information on debits and credits. This is going to give you a great advantage especially when you need to fix data that have been incorrectly imported.

• Find your niche and develop it.

Instead of trying your luck on mastering various products, focus on a single product so you will only deal with a single standardized process. This way, you can work on a specific niche and ensure remarkable results.

• Participate in the community of bookkeeping technology.

If you are looking for a valuable resource that can help improve your skills and have an edge in spite of the proliferation of bookkeeping software, get involved in a community where views on bookkeeping technology are shared. When you are in the loop, you will remain updated of the principles of bookkeeping that you need to stick to.

• Explore cloud bookkeeping tools.

Searching for bookkeeping tools that might be helpful to your clients and developing a system where you can minimize errors or glitches on these tools are a must. You can also ask feedback from your colleagues so you will have an idea on the tools’ area for improvement.
You don’t need to be left behind even when bookkeeping technology continues to soar high. Regardless of the competition, being keen on seeing the loopholes and acquiring the ability to foresee future problems can still make you relevant to the world of bookkeeping technology.