As a business owner, there are many roles and responsibilities that you have to juggle. From managing your staff, maintaining client and customer relations and developing marketing strategies, it’s a demanding role that requires hard work and dedication.
However, one of the most dreaded responsibilities that business owners handle is the bookkeeping. Proper bookkeeping is essential in ensuring the continued success of a business and keeping track of its expenses, profits and debts. Failure to maintain high bookkeeping standards can result in the viability of your business being in jeopardy as well as tax penalties and fines.
Unfortunately, many small businesses make a number of seemingly small bookkeeping mistakes that can end up having disastrous consequences. To help you avoid these potentially devastating blunders, here are 5 of the most commonly made errors by small business owners in Australia.
1. Improper categorisation of expenses
Tracking your expenses correctly is an essential part of keeping track of your profitability and having an accurate understanding of what’s going on within your business. However, errors such as data entry mistakes, assigning expenses to the wrong account numbers and misreporting startup costs are commonly made and can greatly impact your business.
They can affect your business in many ways, such as warping profit margins and causing you to over-report your income, having late payment fees and increased interest or fines, and failing to report deductible expenses. Make sure to double check the data you’re entering is correct and try to always give tasks like these your full attention.
2. No backup records
If you’re storing all your records digitally, they can be lost in an instant if your system crashes or is somehow compromised. If you don’t have all your financial data backed up you could find yourself having to complete the complicated and tedious task of redoing everything from the beginning.
Using a cloud-based accounting system will enable your data to easily be stored securely and safely, while easily being accessed any place and any time. Many of these systems will also allow you to seamlessly integrate your financial records with other business applications and your bank account, creating a smoother bookkeeping process overall.
3. Lack of account reconciliation
Account reconciliation involves ensuring that two sets of records are in agreement with one another and display the same information. This can be done by regularly making sure that your bank account accurately reflects the same balance as you keep track of your cash flow and any other business expenditures.
If it fails to do so, this could signify a mistake that’s been made or even an unauthorised use of your company’s funds. Regularly making sure of account reconciliation will help you to stay on top of these issues and rectify any mistakes before they become irreversible.
4. Classifying employees incorrectly
Many businesses tend to have a combination of employees and independent contractors on their payroll. Determining this correctly will impact both the rights of the employee and the obligations that you owe them, such as superannuation and tax classification.
Failure to correctly classify your employees can result in serious penalties and fines, so compliance must be maintained at all times.
5. Bad record-keeping
Keeping track of all your records correctly takes a considerable amount of time, effort and organisation. Every single translation you make needs to be recorded and you’ll either need to hold onto the receipt or make a digital copy of it.
If you’re unable to do this, you may find yourself missing out on important records that land you in hot water during tax time. Working with a professional bookkeeper will ensure that all the correct procedures are being followed and your business operations will remain above board.
6. Failing to record small transactions
Small transactions such as office supplies and free items you gift to your customers can seem unimportant, but when it comes to tax time every cent counts. Every single dollar you spend must be recorded and have proof of purchase, no matter how insignificant it may seem in the big scheme of things.
If your business is forced to undergo an audit, every single business expense must be accounted for. Not having records of these transactions can result in a deeper investigation being conducted and significant penalties being charged.
Bookkeeping can be a headache, but if there’s one area of your business where you don’t want to cut any corners, this is it. If you’re struggling to wrap your head around the complexity of bookkeeping, consider hiring a professional to take on some of these responsibilities. Read here why bookkeeping is Important for your business. This way, you can focus on the needs of your business and not on those of the Australian Taxation Office.