5 Bookkeeping Mistakes that can Ruin your Business

Tax preparation Sydney | W Advisory AccountingBookkeeping errors are costing small businesses time and money. It is important in any business to ensure hiring a professional and experienced bookkeeper you can trust.

Most businesses would not know where to begin when reviewing their bookkeeping or their bookkeepers’ work. The easiest way to tell if your bookkeeper is doing a great job is by gaining your own basic understanding of accounting and be able to check the following areas of work. You are best to get your accounts all sorted beforehand, and that way the data file and reports you hand to your tax agent are accurate and reliable. Remember that Accounting is nothing more than a way of representing what has happened to your money which you can use to drive good (profitable) outcomes.

Just start with the very basics, get to know the two reports you need:

  1. Profit & Loss Report 

    Details of what came In and went Out of your business

  2. Your Balance Sheet 

    Details of what your business now Owns and Owes as a result of what came in and out.

By knowing these two simple definitions it is pretty easy to do a check and make sure everything is being allocated correctly. But, if you are unsure, concerned or confused, Don’t be afraid to ask for help,

ASK YOUR ACCOUNTANT!

Now, take note of these errors your Bookkeeper might have done:

  1. Not Finishing Everything

Your Bookkeeping is not completed each time, so some tasks are never being addressed. In which may have been caused by:  too much work to be processed within the allotted time-frame or your bookkeeper is just inefficient. Consult your accountant how much time they estimate should be spent each week in getting this job done. Because if you have a good bookkeeper, it should keep you abreast of unfinished tasks on a daily and weekly basis, be transparent how work is prioritised, and request more hours or resources when things have grown.

  1. Not Filing and Archiving

Bookkeepers must file receipts and invoices for goods, services or other business acquisitions purchased by the business on a regular basis. As business owners, you are legally required to keep all your receipts and invoices for every single purchase and sale of all goods and services – these need to be held for between 5 and 10 years (depending on your legal jurisdiction). Most current Accounting Programs already enable scanning and uploading of paperwork within a relevant spot electronically, which saves on physical office-space, irrespective of paper or not, make available enough folders, filing cabinets, software etc. to do this job well.

  1. Ineffective Reconciling

A good bookkeeper must be able to Balance all the Books at least Monthly, checking every Balance Sheet item, not only the Cash ones. Bank reconciliation is a comparison between what you actually have and those recorded in the system; In the case of the bank reconciling compares your accounts to the Bank Statement, in the case of your Stock, it compares your Accounts to your physical stock on hand. If you see reconciliation adjustments, your bookkeeper is doing something wrong – adjustments only occur when the actual error is not located and amended properly. Ever thing you Own and Everything you Owe must be accounted for and must be up to date.

  1. Not Working WITH your Accountant

Your Bookkeeper is most likely, not as qualified as your accountant, which means that they don’t necessary know how to correctly handle everything. And so when it comes to that complex transactions there can be guessing, thinking ‘near enough is good enough’, as well as ignoring issues and omissions. This now creates even more problems in these areas:

  1. Payroll and Superannuation Errors – Entitlement issues, tax issues, long-service leave issues, being calculated and paid incorrectly
    b. Compliance Responsibilities – Insurances, Taxes and Annual Returns etc being calculated incorrectly or submitted late
    c. Coding Errors – Incorrectly categorising Income, Expenses, Assets and Liabilities which can lead to incorrect profits and therefore incorrect taxes as well

Therefore, Your Bookkeeper and Accountant should have great communication lines!  This way, your bookkeeper can brief your accountant (as well as advising you) about the 5% of most complex transactions ensuring both of them agree on the method of accounting for.

  1. Not monitoring Cashflow

Cashflow is the life of any business, ensuring your Debtors pay you promptly and your bills are paid on time is a key part of this role, so if your bookkeeper is not paying attention to getting the cash in and metering the cash out, you can easily end up insolvent. A good bookkeeper must regularly update you with the current cash position, create room for cash contingencies, and help you plan for the cash requirements of further business development.

Engaging with unqualified and inexperienced people, you end up paying extra for someone else to fix the mistakes that prevent your finances being accurate, current and complying.

Now you’re better equipped with what to look out for when hiring a bookkeeper. Always engage the assistance of a qualified and reliable bookkeeper and keep in mind that this service is also tax deductible. Hiring a qualified bookkeeper helps you focus on what you do best and that is growing your business while ensuring your record keeping is up to date.

References: Smart Accounting

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