Avoid costly DIY mistakes
The Australian Association of Australian Bookkeepers said that no nationally recognised standard, minimal government governance and shortfalls in education opened the “flood gates” to a litany of basic BAS mistakes causing GST revenue leakage estimated in the billions of dollars per annum and a mind-set of “no-ones watching” from the bookkeeping industry. Common DIY mistakes are:

• late lodgement of BAS and PAYG;
• paying incorrect superannuation contributions;
• invoicing incorrectly;
• incorrect GST coding usually resulting in under-claiming or over claiming GST credits;
• failure to keep backup records.

These mistakes are due to lack of training, inappropriate education or lack of experience leading to the risk of high fines and penalties from the ATO or an accountant having to amend the books at a much higher hourly rate than a professional bookkeeper would charge.

An onsite bookkeeper gets to know your business
As your business relationship develops with your bookkeeper, they will start to understand your business and the key performance indicators. So many businesses fall into the trap that when an in-house bookkeeper leaves taking their knowledge of the business with them. With an outsourced bookkeeping company you can be confident that the bookkeeping service will retain all the information about your business and keep good backup records with off-site storage facilities.

Get access to specialised skills
The title bookkeeper can range from data entry clerks to qualified accountants but still perform the responsibilities of a bookkeeper. A professional bookkeeper will have years of experience under their bookkeeping belt, be well versed in bookkeeping practices and legislation, experienced in different types of bookkeeping packages and provide a management and boutique level of accounting. A professional bookkeeper will also be adequately insured which is important as they have a duty of care over the professional advice they provide to clients.

Reduced labour costs
By outsourcing your bookkeeping services on a needs only basis rather than employing a full time bookkeeper, you only have to pay them when you use their services. As reduced labour costs, if a bookkeeping company is outsourced, an outside provider’s cost structure and economy of scale can give their the bookkeeping company an important competitive cost advantage as well. Companies that do their own bookkeeping have higher labour, training and capital expenditure costs, all of which must be passed on to customers.

Improved efficiency of work
Improved efficiency of work is a major benefit of hiring a professional bookkeeper. A company bookkeeper may have additional roles in the company which may take up their time, valuable resources and focus but a professional bookkeeper works in a specialised role where bookkeeping is all they do and it’s done to a very high standard. In the case of a full time bookkeeper going on an extended holiday or leave, a replacement needs to be found who may not be familiar with your bookkeeping procedures at considerable cost to the business.

Bigger picture mentality
The cost of an in-house bookkeeper compared to hiring a professional bookkeeping service is higher when you factor in costs like superannuation, office space, annual leave, sick leave and other benefits. You also have to weigh up the long term costs and have a bigger picture mentality in hiring a professional bookkeeping service in regards to reduced tax liabilities, no penalties in regards to late lodgement fees and the updated and accurate reports can be used to better forecasting of your business.

Stricter ATO regulations for BAS Preparers
The Tax Agent Services Act 2009 requires people who offer BAS services to be registered by the Tax Practitioners Board (a new national body)* and meet the requirements of the board. There are penalties of up to $22k for unqualified bookkeepers that perform BAS related work. This means that if you have an unqualified bookkeeper, you will have to pay your tax accountant to review any BAS work and will be paying the tax accountant rate instead of paying a qualified bookkeeper at a lower bookkeeping rate.

A professional bookkeeping service should be a natural extension of your business and act as a business partner without taking up valuable office space. With the new laws coming into effect on March 1 2010, it is far more cost effective over the long run to hire a bookkeeper who is professional, qualified and experienced to reduce your tax liabilities, reduced accounting costs in reworking the bookkeeping and avoid unnecessary fines and penalties from the ATO for poorly prepared tax returns.

* Comes into effect March 1 2010. If you are already registered as a Tax Agent you will be deemed as registered under the new law until your current registration runs out, at which time you will have to re-register with the new board.

Keeping financial records
Accountants frown on ‘shoebox bookkeeping’ so one of the key roles of a professional bookkeeper is to ensure financial records are current and up to date and there is a regular reporting system in place. The job duties of a bookkeeper includes keeping records of every financial transaction of the business and reconcile the accounts to make sure they balance every month.

Chasing unpaid invoices
A proficient bookkeeper will not only keep records of incoming and outgoing invoices but in addition to this role, they will also chase up any invoices that you should have been issued and also chase up purchase orders which have not been paid. This is an important part of the accounts payable’s role of bookkeeping so you can manage your cash flow and use this information to manage your business strategy and business forecasting.

Keeping abreast of changes in regulation
One of the key duties of a skilled bookkeeping service is keeping abreast of changes in regulation so you don’t have to. This is important in reducing your tax liabilities and making sure you are compliant with current tax legislation. They should also be aware of any important lodgement dates and make sure your bookkeeping is up to date in order to send to your accountant in a timely manner to help them prepare for lodgement.

Knowledge of the latest bookkeeping software and updates
An accountant will set up the initial software and the bookkeeper will maintain the day-to-day accounts and must familiarise themselves with the bookkeeping system. An expert bookkeeper must be well versed and specialised in the latest bookkeeping software updates and changes regardless of whether you are using MYOB, Quicken or other accounting popular software. This may mean purchasing software upgrades, receiving additional training and keeping their systems up to date.

Working with your accountant
One of the essential duties of an efficient bookkeeper is to look after the day-to-day financial needs of the business, keep records accurate up to date and work with your accountant. Your bookkeeper needs to frequently consult with your accountant to make sure that everything is set up properly, records are up to date and accurately entered into the system. If there are any errors, confusion or inaccuracies, this can be fixed up straight away and at a lower cost than an accounting fixing up mistakes at tax time.

With the Tax Agent Services Act 2009* being introduced in March 2010 requiring registration of bookkeepers preparing Business Activity Statements (BAS), it is more important than ever to hire a qualified and professional bookkeeper. While hiring a professional bookkeeper may seem like an unnecessary cost to a business who is struggling with their cash flow, a professional bookkeeper can help the business keep afloat and offset the cost of bookkeeping.

Engaging a service to do basic bookkeeping makes good sense – but exactly what services can you expect them to provide? We look at the 5 core components of any good bookkeeping company.

Accounts Payable and Receivable

This is one of the most universal of all the basic bookkeeping functions – all businesses need to buy things and be paid for the things they supply. You can expect your bookkeeping company to do things like:

• Set up an invoicing system
• Track the status of payments
• Identify problem payers from among clients
• Pay your bills promptly

Payroll and PAYG

This is one of the most heavily regulated sectors in bookkeeping, and what you have to do to comply often changes from year to year. Payroll law is something that really doesn’t interest many business owners, and you can expect any good bookkeeping company to provide both payroll and PAYG administration.

BAS Preparation and GST compliance

Though the system has been in effect now for well over a decade, GST law is still something that doesn’t come naturally to many business owners. Depending on your particular business, there may be specialist taxes that you need to account for, such as the wine equalization tax and luxury car tax.

A good bookkeeping company can handle your Business Activity Statements, help you keep up to date with GST obligations, and identify any problems with your system or records before they become unmanageable.

Superannuation

Even sole traders and partnerships can benefit from the help of a basic bookkeeping service in maintaining superannuation records for themselves; for businesses that are employing people though, professional assessment is critical. Your bookkeeping company will manage aspects of superannuation obligations like:

• Amount and regularity of contributions
• Ensuring super fund eligibility
• Provide your employees with a choice of super fund
• Calculating the superannuation guarantee charge

Profit and Loss Statements / Balance Sheets

It can be impossible to get an accurate idea of where you business is positioned financially by looking at the fine details. Even if you are the one paying the bills and doing the invoicing, Profit and Loss statements, or a balance sheet, help keep the big picture in mind.

A professional bookkeeping company can generate these in a way that makes it simple for an accountant or other qualified financial adviser to import the records into their system, and offer advice on the bottom line.

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Setting up the bookkeeping system

The accountant sets up the bookkeeping system that the bookkeeper will adhere to. The accountant must develop a system that is beneficial to the business, by capturing the financial information in a useful manner to able to run reports and manipulate data but should also be easy to use and not overly cumbersome for the bookkeeper.

Keeping accurate and up to date records

Accountants can fix errors in bookkeeping, but often their hourly rates are so high that it is not cost effective for them to pick up the pieces. For that reason, bookkeepers should frequently consult with accountants to make sure that everything is set up properly, records are up to date and accurately entered into the system.

Double checking BAS and accounts

A bookkeeper will liaise with the business owner to receive all the information necessary and enter it into the bookkeeping system without the costly expense of an accountant entering these details. All your accountant needs to do is ensure that the details for the BAS and accounts match before the tax return is done and double check the bookkeeper’s work.

Simplifying the accounts

The accountant will use the information entered by the bookkeeper to simplify the accounts in order to better analyse cash flows. For example, the bookkeeper may have recorded clients funds into many accounts, the accountant will see this and put all the funds into one account and advise the bookkeeper accordingly.

Strategic planning

A good bookkeeper will keep the books up to date on a day-to-day, week-to-week, and month-to-month basis but an accountant needs to have a bigger picture mentality. Armed with the data the bookkeeper provides, an accountant can use information to suggest improvements and strategies to implement in terms of cash flow analysis, setting benchmarks, budgeting and forecasting for the business.

A good bookkeeper will keep the accounts in order so an accountant will only need to check over the figures to make sure they are correct saving you money in exorbitant accounting fees. Hiring a bookkeeper is a cost effective way to manage your day-to-day accounts without having to pay the excessive fees of an accountant who can focus on tax compliance, auditing and planning, freeing your time to run your business.

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Lack of understanding of accounting software

A lack of understanding of basic accounting principles and complex accounting software can lead to inaccuracies in accounts which can potentially lead to penalties being imposed by the ATO for underpaying tax. A professional bookkeeper will understand the intricacies of the software and what records need to be entered into the system. This will avoid the costly process of your accountant correcting your books at year end and avoid any tax liabilities which will save you money in the long run.

Missing deadlines for PAYG (Pay As You Go) or BAS

One of the mistakes an owner can make when doing their own bookkeeping is failing to lodge their PAYG or BAS statement on time. This can lead to a failure to lodge on time (FTL) penalty. Using the services of qualified bookkeepers will give you peace of mind as they will keep your records up to date and contact you when they require any additional information to lodge your forms on time. You remain responsible for ensuring that the necessary information is with your bookkeeper in time.

Paying incorrect employee super contributions

The minimum super amount you have to pay is 9% of each eligible employee’s earnings base when they are paid more than $450 in a calendar month. From July 2008, the earnings base for most employees is their ‘ordinary time earnings’. Failing to meet your superannuation obligations and non compliance with Australian superannuation laws may result in penalties issued by the Australian Tax Office. A bookkeeper with an understanding of superannuation laws will make sure all your superannuation obligations are met.

Invoicing incorrectly

One of the major mistakes a business can make is incorrect invoicing or waiting months to invoice which can put a strain on your cash flow. Incorrect invoicing can be a huge cost to a business in the time lost to try and reconcile the invoice with the product or service purchased and an unpaid bill in the process. Having a professional bookkeeping company on hand will ensure correct firstly that the invoice is correct, is it is issued in a timely manner and they will also chase overdue debtors, leaving you to the important task of running your business.

Incorrectly recording items as being deductible when they are not

One of the most common mistakes made when doing DIY bookkeeping is incorrectly recording items as being tax deductible such as claiming for a full tax deduction when an item is partially being used for private purposes such as a motor vehicle or claiming GST tax deductions when your supplier is not registered for the GST. A professional bookkeeper will keep up to date with the changes in tax laws pertaining to your industry and have a full understanding of what items are tax deductible for your business.

Failing to keep back up records

There is an ongoing education process for business owners in regards to knowing what records to keep, for how long and ideally recording details in an accounting software package for easy access and transfer to your accountant. However, backing up these financial records is equally as important. Your laptop may be stolen, the hard drive may fail or in the worst case scenario, your house may burn down. Back up storage should be kept offsite in case of a fire or break in. A specialist bookkeeper should have off-site storage facilities available as part of their service.
The advantages of using a professional bookkeeper will ensure your records are correct and up to date, they keep abreast of changes in tax legislation that may affect your business, keep a close eye on cash flow and help reduce your tax liabilities. Good bookkeeping puts you in control of your cash flow and you can use the updated reports to make important business decisions and forecast the future plans of the business which will offset the cost of the bookkeeping service.

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Claiming GST without valid tax invoices

Under Australian tax law, you can claim a GST credit for purchases that cost in excess of $82.50 (including GST) but you must be registered for the GST and have a valid tax invoice (or recipient created tax invoice (RCTI). If you use an incorrect or incomplete tax invoice to claim a GST credit, the GST credit may not be allowed.
To claim GST credits for purchases that cost $82.50 or less (including GST), you must keep documents such as cash register dockets, receipts or invoices to support your claims. You must also keep your tax invoices and other GST records for five years.
To find out more about tax invoices, contact the Australian Tax Office.

Claiming GST without realising that your supplier is not registered for GST

A business in Australia is only required by law to be registered for the GST if their GST turnover is $75,000 or more ($150,000 or more for non-profit organisations) and/or if you provide taxi travel as part of your business, regardless of your GST turnover. Taxi travel means transporting passengers by taxi or limousine for fares.
However, a business with less than less than $75,000 ($150,000 or more for non-profit organisations) can also opt to register for the GST.

Your supplier must be registered for GST before you can claim a GST credit on a purchase. Ask the supplier whether they are registered for the GST or ring the Australian Tax Office for more details.

Claiming GST credits for full amount of purchase when goods are used partially for private purposes

You are allowed a partial GST credit for the GST you pay in the price of things you use partly for business purposes and partly for private purposes such as a motor vehicle.

The amount of the GST credit you are entitled will depend on how much you use the purchase for business purposes.

In addition, if you account on a cash basis and have not paid for the purchase in full, you can only claim a credit for the GST included in the amount you have paid.

Short-changing yourself by not claiming valid GST tax deductions

Business owners often pay for expenses out of pocket or with their own personal credit card then make the mistakes of failing to track these expenses. They may then fail to submit the expenses to the company for reimbursement or lose tax invoices.

A qualified bookkeeper or accountant will be able to track all expenses, keep up to date with all current tax legislation and be able to advise you what GST you can claim so you can receive the maximum rebate from the government come tax time.

Not keeping accurate GST records

The stereotype of a small business owner keeping their invoices in a shoebox unfortunately still rings true for a lot of small business owners. By employing a bookkeeper, using commercially available software used for bookkeeping records and keeping GST records up to date, you will be able to monitor your GST and simply your Business Activity Statement (BAS).

GST is claimed when you lodge your BAS and the exact period you claim it will depend on whether you account for GST on a cash or accruals basis and your annual turnover.

If your turnover is less than $2,000,000 and you are a small business, you may elect to lodge your BAS either monthly, quarterly, or annually. If you’re turnover is more than $2,000,000 you must lodge monthly.

By monitoring your GST and keeping accurate records, you will be ready to lodge your GST claim on time and reduce any tax liabilities.

There are many advantages to having a bookkeeping service and just one of these is to make your GST less taxing and make it easier for you to record all your GST transitions and claim for all legitimate GST deductions. By leaving it to the experts, you can ensure your GST is done correctly and on time and you can concentrate on running your business.

Cost-effective

Hiring a bookkeeping service can be more cost effective than hiring casual or part time staff to do your bookkeeping. There is no need to purchase and maintain computer systems, buy expensive accounting software and upgrades or invest in expensive training and development of staff. Office space does not need to be allocated to a staff member and there is no superannuation, leave entitlements or any other costs that a full or part time employee incurs.

Time effective

A bookkeeping service has the expertise and know-how to look after your accounts and let you focus on the day-to-day running of your business. Bookkeepers should be flexible and schedule meetings around your busy work schedule and be able to produce reports and figures at a moment’s notice to accommodate any last minute meetings. A bookkeeping service can also keep your accountant up to date with things such as BAS lodgement status, when they can expect to have your files for annual tax return and accounts preparation and can also chase up unpaid invoices. This allows you to manage and grow your business without having to focus on administrative tasks.

Higher profits

A bookkeeping service puts you in control of your cash flow, reduces tax liabilities and maximises profits through management controls. Bookkeeping services can provide a regular reporting service and keep processes up-to-date. This includes detailed knowledge of balance sheet financial position and profit & loss performance to date which can be analysed in greater detail if required. You can use your customised reports to make business decisions, prepare budgets, and review your past performance to forecast the future plans of the business and maximise profits.

Reduced tax liabilities

By outsourcing your bookkeeping, you can rely on the expertise, knowledge, and experience that using an outside consultant brings to a business. When you work with a bookkeeping service you are ensuring that you have a knowledgeable specialist on your side that will use all of their expertise to your businesses’ advantage and reduce any tax liabilities for your business, ensure that the bookkeeping is done accurately and does not incur any penalties for late lodgement or inaccurate data.

Peace of mind

Hiring a bookkeeper gives you piece of mind that a regular reporting system is in place, processes are up to date, you are managing your cash flow, paying invoices on time and chasing up any unpaid invoices. Your bookkeeper should keep you abreast of any changes in regulation and be prepared for any important lodgement dates such as your BAS statement and annual tax return. The bookkeeping service should be a natural extension of your business and allow you to concentrate on other areas of your business knowing that your bookkeeping is in good hands.

Hiring a bookkeeping service should be seen an investment for your business not an expense. By employing a bookkeeping service, this ensures your bookkeeping is managed by a specialist with up-to-date knowledge of any tax legislation to save you money, reduce your tax liabilities, streamline your business and maximise your profits.

Conducting efficient business bookkeeping can be a nightmare and extremely time consuming, taking you away from other aspects of the business that actually make money, rather than manage it. It is one of the any horrors that come along with owning your own business, and rest assured, almost nobody gets in to business so they can enjoy doing the paperwork.

For those looking to start a business, business bookkeeping is the recording and managing of your businesses’ finances and transactions. You need to keep coherent records of everything business related for tax purposes, and ignorantly missing something or deliberately not declaring income is considered fraud. So it is very important. Plus it gives you a better grasp of how your business is doing financially.

Typical methods of business bookkeeping involve using a cash book to record payments going in and out of your bank account, Sales invoice file to show a chronological list of all of your invoices as proof that they occurred, and a purchase file showing proof of everything you purchased for business related means. This allows you to calculate tax deductions at the end of the year. There are various other methods, some more advances, and others less organized, but this essentially holds all the data you need internally and externally for tax purposes.

Knowing this, you can tell how boring, tedious and time consuming business bookkeeping can be. At the end of every day, week, or month (depending on how you wish to tackle it), you need to go through each individual transaction, statement and invoice and log it in to your system. Any mistakes can result in a lack of deductions or huge penalties. Due to its time consuming nature and the possibility of making mistakes many businesses choice to outsource their business bookkeeping to a professional bookkeeping service.

Whereas you might do the bare minimum to get by, often ignoring small business expenses, or waiting months to update your files, bookkeepers make it their job to stay on top of the situation, and use their skills and methods to make sure you pay the very least amount of tax at the end of the year. The ability to hand the job over to somebody else gives you the time to focus on more important aspects of the business.

Bookkeeping is major part of every successful business and is something that needs to be done efficiently and at a regular basis to stay on top of paperwork and to keep everything in line for when it comes to filing tax returns and the like. Despite its importance many business owners ignore the various bookkeeping solutions out there and go for the old paper file system. Although it may be an organized method, it is also one of the more time consuming and erroneous systems to use. Below is an outline of the various solutions you can use, along with their pros and cons.

Paper Based Bookkeeping Solutions:

The traditional paper based system simply uses a series of folders, files and books where you store invoices and receipts and write down transactions and calculations. You can simply create headings yourself, or buy a pre-laid out book to make things easier. Although this is simple and cheap, the risk of losing files, making mistakes and having to start over are far too high, and the storage needed begins to mount up. You can’t make backups in case of an emergency and doing things by hand can be very time consuming. Still for small businesses this may actually be a good option.

Spreadsheet Bookkeeping Solutions:

This is the next logical step to take and does away with many of the problems related to the paper based system. It’s easy to go back and change records, calculations can be done automatically, multiple backups can be made and everything is neat and organized. However you’ll need the knowledge and guidance to actually set up the working spreadsheets, you’ll need to purchase the required software and PC equipment, and you may need to train staff to use it. Also data is only as good as the person entering it.

Specialized Software Bookkeeping Solutions:

Unlike spreadsheet that need to be created to work in a bookkeeping manner, and need the right formulas for any calculations, specialized bookkeeping software is generally “out of the box” and can be used right away when you’ve input some business data. However software can be very expensive and sometimes it has too many features that the user may become overwhelmed.

Hiring Bookkeeping Pros:

Perhaps the easiest and most efficient bookkeeping solution is hiring a professional to take care of it for you. Pros are already trained to use all of the software required and Instead of doing the bare minimum will go out of their way to keep your books updated and financially efficient for tax purposes. They can help lodge your Business Activity Statement and tidy up your creditors and debtor’s files, which will help you improve cash flow, among other things.

One of the most important aspects of running a small business (as opposed to a big business that can simply call down to the accounting department) is successful bookkeeping. It keeps everything organised, remains on record in case evidence is needed or you simply need to refer to an old transaction and makes filing tax returns a lot easier. The following tips should help you maintain affective bookkeeping so that you can spend your real energy on running the business and making profit.

• Choose The Right System For Your Business: There are two recognised bookkeeping systems, the cash based and the accrual based. Within a cash based system you enter records when you receive income and when you’ve paid expenses, as and when they physically happen. In an accrual based system you enter records when the action takes place but not necessarily when you receive your income or pay you expenses. The accrual system works when there is a lot of credit based transactions.
• Utilize ICT: Come on people, in this day and age you need to use a computer to help you, not only with the sums but with the organisation. 10 years worth of accounts can fit in one spreadsheet with the ability to search and edit with the click of a mouse. 10 years worth of a paper based system means stacks of files, scruffy bits of paper, hard to read handwriting and scribble!
• Stay On Top: You should keep your books and records updated on a daily basis. At the end of every day go through, collect receipts, add up the sums and keep your books clean. In some businesses waiting a week to update your records can be very hectic. You may misplace something, forget that you put some cash aside or you may make errors due to the large amounts of data. If you wait months or even the whole year you’re setting yourself up for big trouble. If you want to have a firm grasp on the financial stability of your business then daily bookkeeping is a must.
• Once one year is over, don’t throw everything to one side or buy a new computer without transferring you info over. Keeping an audit trail is a must because if the tax man comes knocking and wants to go over something from 5 years ago, if you can’t come up with the goods they win be default, even if they are barking up the wrong tree.
• If you are self employed is very easy to treat your business as if it is your finances. But you should be treating it as if it is a business’s finances. Keep personal transactions and business transactions separate so you don’t count your daughter’s ice cream Sunday as a business expense.

The bottom line is to keep everything organised and at hand at the end of every day; so it 3 months you will still have everything organised and at hand.