Common Small Business Bookkeeping Errors to Avoid
Bookkeeping problems can cause a surprising amount of grief to business owners. Errors affect your decision-making, your tax position and cash flow. The great news is that good financial habits can reduce stress and increase clarity. Let’s look at the different types of bookkeeping errors and the solutions to them.
Chaotic or Incomplete Record-Keeping
Shoe box or inbox bookkeeping seems like a reasonable solution when you’re new to business. Creating supplier folders in your email system might make sense, but it’s really cumbersome when you’re looking for something. There’s also no way of cross-checking whether you have a document for each transaction in Xero. When we work with clients using this type of filing system, they are often surprised and frustrated by the number of items they cannot find when asked.
When your bookkeeper Melbourne asks you to find a receipt for a one-off expenditure from five months ago and the name of the supplier on the bank withdrawal isn’t the same as the name of the supplier in your inbox, it’s going to be challenging to find. You’re already losing money as you can’t be sure you paid GST, so you can’t claim it back on your activity statement.
There are supplier invoice, receipt and statement software packages available today that you can use to automate document collection, data extraction and data integration with Xero. You can literally automate your inbox to send specific emails to your receipt software and it will extract the data and allow you to send that data and the attachment to Xero either manually or automatically. Use the same app to take photos of receipts on your mobile on the go. You’ll have all your supporting documentation attached to each transaction in Xero. You’ll be able to look back at any historical transaction and check the details on the document.
Your BAS agent and tax agent will love it, as they’ll be able to verify and correct transactions with ease and you’ll also be well-prepared in the event of an audit. Everything will be ready to go, and you won’t be stressing out over it.
Making Bookkeeping Your Last Priority
Binge bookkeeping is painful. It’s time-consuming and strains your mental health when you have to face a task you’ve been putting off until you can’t any longer. It’s much easier to remember what you bought from a supplier when it happened last week. Imagine trying to remember what it was for when it happened six months ago. If you or your bookkeeper Melbourne need to scroll through hundreds of bank transactions in Xero to find all the ones related to a specific supplier to try and match up receipts to those withdrawals, it will take a great deal longer than reconciling last week’s transactions only with a handful of digital receipts that are already waiting for processing.
Get a professional bookkeeper Melbourne to configure a system and workflow that works. Sticking to good habits will help you stay on top of your bank reconciliation.
At On The Money Bookkeeping, we regularly help Melbourne business owners fix costly bookkeeping errors before they become serious financial problems.
Loading Activity Statements Late Because You’re Behind
The most common reason why businesses lodge their activity statements late is because they’re behind on processing transactions and reconciling their accounts. Customer demands often take precedence over back-office administration when the pressure is on. If your bookkeeper Melbourne set up systems to make receipts flow from your business to them as consistently and as automatically as possible (with some good manual habits added into the mix), the work will happen in the background seamlessly. Using a system like this, your bookkeeper Melbourne will likely only have a limited number of queries left to close a period. At that point, bookkeeping won’t feel like you’ve just started pushing a heavy ball. It will feel like a ball with momentum that only needs a little push every now and then to keep it rolling.
Not Budgeting for Future Tax Obligations
The trouble with being behind on your bookkeeping is that it’s very hard to know how much money you’ve really made. You’re also making decisions based on outdated numbers and guesswork. Not knowing your true profit and position obscures how much of the cash in your business bank accounts is yours to spend and invest, and how much of it is spoken for. One of the startling realities of running a business is the number of taxes you need to manage and budget for. You collect GST from your customers and retain personal income tax from your employees since you pay them their net wages, not their gross wages. That money is in your bank account and isn’t yours to keep. If you’re running a larger business, you also need to budget for payroll tax (a tax on wages that has nothing to do with employees’ gross wages).
If your entity made a profit last year, you’ll have quarterly income tax instalments to pay, also know as PAYGI. A good bookkeeper Melbourne will keep your accounts reconciled and be able to advise on short notice how much tax you need to budget for and when it’s due. Get them to keep you abreast of upcoming tax obligations as a regular habit.
Not Tracking Accounts Receivable
Accounts receivable is the balance of unpaid customer invoices. It is critical to business cashflow that customers pay their invoices. You can be making a profit on paper, but if you’re not receiving payment for the sales you’ve made, you will run out of money. Poor cash flow is the reason why most businesses fail. A business needs at least one person responsible for managing accounts receivable.
Sometimes this role split between bookkeeper and business owner, with the bookkeeper issuing standard digital reminders and the business owner making phone calls to customers that are larger or sensitive accounts. Makes sure responsibilities and the division of work in clear. Ask your bookkeeper to be persistent at following you up when customers aren’t paying when expected.
Not Tracking Accounts Payable
Accounts payable is the balance of unpaid supplier invoices. Some businesses don’t track this in Xero, they merely reconcile bank withdrawals to the relevant expense account when it’s paid. This technically works to provide a profit and loss statement, but it does not help a business manage upcoming payments to suppliers with longer payment terms such as 7, 14 or 30 days. To confidently and accurately manage business cash flow and stay on good terms with suppliers, all known transactions should to be entered into the accounting software so that future cash outflows are known and can be planned for.
Tracking supplier invoice numbers and their payment dates helps the business protect against a disorganised supplier claiming an invoice from six months ago hasn’t been paid when in fact it has. It also helps prevent the business paying the same supplier invoice twice, or at least noticing that it’s happened, as Xero will warn you if you enter the same invoice number for the same supplier twice. Many suppliers won’t tell you if you’ve paid something twice. They’ll just silently thank you for the extra money. Get into the habit of using the purchases screen in Xero to enter all your bills.
Mixing Business with Personal
Small business can sometimes be temporarily short of cash, and it can be tempting to use the personal card for a business expense because that account had money in it. The same can be said in reverse. If the business owner doesn’t have enough money in their personal bank account for a personal expenditure, it’s tempting to tap the company card. Mingling business and personal expenditure makes it easy to muddle the books of the business.
If you are short on money, transfer a round sum from one bank account to the other, then pay for the expense using the correct account. This extra step makes it so much easier to identify transfers between the owner and the business. A round number sticks out. It looks like a loan rather than the payment of an expense, which is the exact thought you want the transaction to trigger when someone looks at it.
Avoid Pain and Costly Mistakes
The best way to avoid the emotional and financial pain of bookkeeping mistakes is to hire a professional. Let someone else handle debits and credits while you focus on areas of the business you can’t easily delegate.
At On The Money Bookkeeping, we help Melbourne businesses across Ringwood, Hawthorn, Bayswater, Doncaster and surrounding suburbs avoid costly bookkeeping mistakes
Need Help from a Bookkeeper Melbourne Businesses Trust?
At On The Money Bookkeeping, we help Melbourne businesses:
- Stay BAS compliant
- Manage payroll
- Improve cash flow
- Clean up bookkeeping errors
- Streamline Xero systems
You must be logged in to post a comment.