Regardless of whether you’re a listed company or a mum and dad operation, keeping you books clean is vital to not only the value of your business but also the cash flow of it. We’ve all done it before, paid something we shouldn’t have with the company credit card, got behind in data entry or tried to claim an expense that your accountant will cringe over. For all those of you who don’t have a system yet, here’s the 101 in keeping clean books.
Firstly use a book keeping program. Excel is not acceptable any more, particularly with all the options available to you. I recommend Xero but MYOB and QuickBooks are also suitable. If you find accounting software difficult Xero will be your best bet.
Secondly have a structured collection and entry process. So every receipt, invoice, claim and so on capture it somewhere. An entry, despite sounding old school is still the most effective as long as its only for these documents, nothing else. Then decide on whether you entry data weekly, fortnightly or monthly. No longer as it will pile up. My personal recommendation is weekly as this will also allow you to pay bills as the same time.
Thirdly, bank reconciliation. Despite most people doing BAS quarterly, reconciling quarterly will often be too overwhelming. It’s best done every month. If you use an online accounting program like Xero this shouldn’t take very long at all. If you’re still going off printing bank statements and cross referencing to your accounts then this is fine too but try to get your bank statements monthly. Reconciling monthly will ensure you pick up any mistakes or discrepancy.
Have separate and clearly defined bank accounts. At least you’ll need a personal account for your own wages or drawings, a general trading account for the business income and expenditure and a GST clearing account. Most business owners forget about their GST and then all of a sudden, as if the ATO sprung it on them, they owe a significant amount of money. It’s pretty simple, as a rule of thumb, take 10% off every income you receive and transfer to your GST clearing or holding account. You can even set automatic rules for this. When it comes BAS time you’ll always have the money to pay.
Keep your personal life and business separate. Small businesses are the worst offenders, constantly using the business to pay for personal items however this will haunt you down the track. If you go to sell the business or borrow money and you can’t show a profit then you’ll heavily regret pillaging the business of funds earlier.
Remember business is not a game on how to beat the ATO, no one wins when it comes to tax. Intelligent tax planning and minimisation is appropriate however trying to write off kids school fees or your personal trainer as a business expense simple is detrimental to your company. If you have a good accountant who structures you correctly then you won’t have to scrape for deductions. After all, if you’re paying tax it means your making a profit and no business ever went broke making a profit.
Lastly get engaged. I mean this in all sincerity. Most business owners disengage themselves from their finances and this would be the number one reason businesses go under. Understanding your exact financial position is vital to success. Don’t be afraid and don’t say you it difficult to understand, if you’re going to own a business then you must manage your finances. Now this doesn’t mean you have to be entering receipts into MYOB on Sunday afternoons, have someone else do that, but ensure you have a report once a week and match it to your bank accounts. Don’t be a victim of ignorance, knowing your numbers is too important to rely on hope.