As small businesses expand and grow to new heights there can be any number of growing pains. To help you grow your business with as few pitfalls as possible we have outlined 3 common mistakes business owners can make with their bookkeeping and how to avoid them.
1. Make sure you bank statements are reconciled
The first common mistake business owners can make is to not reconcile their bank statements regularly. Proper reconciliation of bank statements is vital for any small business and should be completed each month when the bank statement arrives. Even if you implement strict control measures, the potential exists for human error in accounting, for example a deposit is incorrectly entered by the teller at the bank or an invoice is paid short. If companies fail to reconcile their bank statements every month, these errors may go undetected and they could be costly. The reconciliation process helps to catch mistakes and deal with any issues early.
You can also use your reconciliation statement to make sure your other company transactions are going through and have been calculated for the proper amount. When small business owners do not take the time to reconcile their bank statements, or at least see an overview of the results, they may be unaware of potential income issues or shortfalls. Keeping an eye on bank statements can help you keep your finger on the pulse of your company and spot income fluctuations. Reconciling your bank statement helps you prevent losses and may indicate a potential problem in your accounting system, and most importantly, gives you the knowledge and control over your finances to ensure best growth.
2. Make sure you send regular debtor statements to manage your cash flow
Secondly, cash flow is critical for the health of your business. It is vitally important to send regular debtor statements because they provide an overview of all outstanding payments owed to your business by customers or clients, helping you to prepare an accurate cash flow forecast. Using debtor statements will help you know how much money you can expect and when. Even more importantly, debtor statements can help you produce a cash flow forecast and give you a better idea of the amount of money the business can realistically spend in the near future without jeopardising its financial wellbeing.
3. Always maintain update and latest correspondence with the ATO and your other compliance bodies to avoid penalties and fines
Tax is a very important part of Business. The penalties and fines exacted by the Tax Office are designed, it says, to “encourage taxpayers to take reasonable care in complying with their tax obligations”. Given that Australia’s taxation is based on a system of self-assessment, and that we deal with many taxes that are far from simple or straightforward (such as the twists and turns of the goods and services tax and the various regimes within the income tax system itself, such as taxing capital gains), “reasonable care” can seem a big ask. There are a few things you can do to stay on the right side of the fence as far as avoiding having to pay a penalty, and of course paying the right amount of tax, on time, has to be top of the list. But there are a few other steps you can take to make sure.
• Keep adequate and accurate records
• Stick to proven, genuine tax deductions
• Use legitimate business structures
• Make sure your business is registered for all the appropriate taxes
• Keep your contact details up to date (so you don’t miss important information from relevant organisations or branches of government)
• Never “back date” your documents.