Bookkeeping Guide for eCommerce: What You Need to Know

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Bookkeeping for an eCommerce business has unique challenges. Between tax implications, shipping processes, and website overheads — you need to know your stuff. Frankly, as your organisation grows, it gets harder to do it yourself. 

The best practices for eCommerce bookkeeping will help protect you come tax time, but they also prepare you for seeking investments and more. Here is your guide to bookkeeping for eCommerce organisations. Everything from how to get started to who to ask for help — all in one place!

What you need to start doing bookkeeping for your eCommerce business

If you’re brand new to selling online, there are a few milestones to meet before your organisation can start selling. And we’re not just talking about getting a point of sale system on your website. In order to effectively track your sales, collect the right taxes, and have accurate books, you should also complete these three tasks. 

Get set up for GST

If you think you’ll turn over $75,000 or more annually in Australia or $60,000 or more in New Zealand, you need to be set up to pay goods and services tax (GST). In Australia, it is important that you register for GST within 21 days of passing the threshold. For this reason, it’s often wise to register well in advance if you think it is likely you’ll eventually pass the $75,000 threshold. Not only does registering for GST allow you to add tax to your sales, but it also permits you to claim back GST from the Australian purchases you make from GST-registered businesses.

Create a business bank account

eCommerce business owners should never mix business and personal funds — it’s just too messy. Create a business bank account as soon as you set up an eCommerce store. Your sales should be funneled directly into your organisation’s account for easier bank statement reconciliation. To open a company bank account in Australia, you will need a certificate of registration of a company, an Australian business number, and proof of identity documentation.

Choose an accounting system

Once you have your tax registration in place  and you have a bank account set up, you want to get your eCommerce bookkeeping up and running the right way. The right bookkeeping software allows you to maintain accurate balance sheets, financial statements, payroll reports, and more. You want an accounting software and strategy that can scale with you. Be careful of accounting software that has limits on the number of transactions and customers you can track. This will provide barriers later on. 

Why eCommerce bookkeeping is important

For very small cash businesses, basic bookkeeping might work for the short term. But trust us – tracking expenses and revenue in a spreadsheet is not a good idea for a growing business. eCommerce bookkeeping helps you track many vital processes. 

Whether you hire staff for the back office or enlist virtual bookkeepers, here are some of the things your eCommerce accounting and bookkeeping services will handle. 

  • Managing your eCommerce accounting software. A good bookkeeper will manage your accounting software, such as Xero or MYOB. Robust accounting software can generate essential reports around the clock and help you identify trends in your eCommerce sales. 
  • Paying merchant fees. When a customer uses a credit card to make a purchase on your website, you will incur a merchant fee. This is calculated as a percentage of the sale. By accurately tracking merchant fees in your eCommerce bookkeeping strategy, you can figure out how to adjust pricing as necessary to recoup these fees.  
  • Handling third-party payment tools. To avoid the highest merchant fees, you may want to begin accepting other forms of payment. Adding PayPal, Stripe, eWay, or SecurePay to your website can sometimes lower your fees on domestic charges. 
  • Tracking sales from multiple sources. Obviously you won’t be accepting hard cash over the internet. But you’ll still receive payments from more than one source. Visa, Mastercard, third-party payment tools, gift cards, and other payment sources need to be sorted. Your bookkeeping should be able to track and analyse where your payments are coming from and the implications for cash flow. 
  • Configuring foreign sales conversion rates. eCommerce customers paying in foreign currency can also pose some unique challenges. If you plan to sell internationally, you’ll need an accounting software and/or bookkeeping system that can track conversion rates and help you advertise prices accordingly. You’ll also need to document the conversion rates on foreign purchases your company makes so your bank statement can be reconciled properly. 
  • Collecting and recording shipping fees. eCommerce sales usually involve some sort of shipping. A streamlined bookkeeping service will track your shipping costs. Comparing costs to what you charge for shipping lets you know when and if you need to increase shipping charges to cover your overhead. 
  • Tracking eCommerce inventory. Your eCommerce bookkeeping system is also crucial when it comes to tracking inventory. 
  • Figuring out your cost of goods sold (COGS). The total COGS for your business may be higher than you originally anticipated. Between packaging, advertising, shipping, and other overheads — it costs you more than just materials and labour to move units. Bookkeeping gives you a better picture of what your expenses actually are. 
  • Preparing for investors. If you ever need a business loan or want to take on investors for your eCommerce business, you’ll need accurate books. Anyone considering giving your business cash will want a precise picture of where your finances stand.  

eCommerce bookkeeping best practices

Maintaining e-business books as a business owner is easier if you follow some basic principles. Of course, you want to stay current and avoid using catch-up bookkeeping as your go-to accounting method. And you want to lodge your taxes on time to avoid penalties. There are a few other things to keep in mind. 

Best practices for eCommerce bookkeeping include:

  • Learning the difference between cash vs. accrual accounting. Cash accounting only counts transactions when cash trades hands. Accrual accounting notes a transaction when the service is provided — even if it hasn’t been paid for or received yet. 
  • The cash method works for small businesses, but if you turn over tens of thousands of dollars per year, the accrual method is more appropriate. 
  • Using double-entry bookkeeping. Single-entry bookkeeping only tracks transactions once. With double-entry accounting you’ll catch more mistakes and create stronger efficiencies. 
  • Cloud-based accounting. When you’re doing your business online, it makes sense to keep your bookkeeping online, too. Cloud-based accounting keeps records on hand at any time. 

What to look for in an eCommerce bookkeeping service

Let’s be honest, bookkeeping mistakes can put a handbrake on your entire enterprise. And handling your own books can be too much to handle. Leveraging a bookkeeping service with expertise helps to save the day. 

What do you look for in a bookkeeper? Let’s talk about what they must be able to handle if they’re going to help you thrive. 

A good bookkeeping service can handle multi-channel revenue. Can your current bookkeeper manage the sales from Shopify, Amazon, Etsy, and your own website? You don’t want a service that has limited understanding of the latest sales channels. Can your bookkeeper scale with you? As your organisation grows, it will have more complex financial needs. Your reports and tax lodgements should reflect that. 

Can your bookkeeper provide you with clear, actionable reports? You don’t need a list of transactions with no insights — you also need to know what to do next. A good bookkeeper will forecast the best path toward increased cash flow and debt reduction. 

Speaking of cash flow, can your bookkeeper monitor your cash flow and spot red flags? Can they point out areas of improvement, such as where you can cut back on overheads or reduce materials costs? Improved cash flow gives you more room for expansion and can help you add staff to your growing business. 

Can your bookkeeper handle foreign currency? There are unique conversions and fees associated with international transactions. Not to speak of additional shipping charges. The right bookkeeper for your growing organisation will be able to tackle all of these issues — and anything else that arises. 

The final word on eCommerce bookkeeping

eCommerce accounting and bookkeeping don’t need to keep you up at night. You’ll sleep easier with help from an experienced team who know how to manage multiple payment streams and foreign transactions. 

At Visory, we pair you with bookkeepers who know your industry and can scale with you. You are able to add new members to your bookkeeping team, or scale back down, as needed. Why add a back office staff member when a virtual team can handle your needs without taking up office space?

5 Reasons to Keep Your Bookkeeping Current

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You don’t want to constantly play catch-up bookkeeping. Sure, this method of accounting gets your books up- to-date — but  the goal should be to stay there. Getting behind on the books affects your accounts payable, could lead to tax penalties, and may ultimately cause your business to go under. 

You can’t effectively run a business if you don’t know whether your books are in order. What if you have outstanding payable invoices or you’re not running your payroll tax correctly? You can achieve financial accountability through double-entry bookkeeping, regular reports, and bank reconciliation. But all of this takes time. Keeping your balance sheets and ledger current can be easier when you outsource bookkeeping. 

Reasons to stay current on your books

The implications of incomplete financial records are serious. You may forget who owes money to you, who you owe money to, and lose track of overhead expenses. Many small businesses simply don’t have the time and resources to implement complex accounting systems. It’s easy to understand how accounting mistakes are made. 

Here are five reasons to make sure your books are kept up to date. 

Bookkeeping helps you manage your expenses

Business finances boil down to income and expenses. Every time you write a cheque or process payroll, it needs to be accounted for. Up-to-date bookkeeping helps you manage your expenses and stick to your budget. You won’t blindly overspend again. 

Bookkeeping proves revenue forecast

Do you know how quickly to scale? You may have big dreams about becoming a millionaire overnight, but the reality is that scaling responsibly often takes time. Real-time bookkeeping helps you understand the rate at which your revenue is actually growing. If you outsource bookkeeping to an expert, they can provide an objective assessment of what your current financial forecast looks like. 

Bookkeeping can take the stress out of tax season

Tax penalties for businesses in Australia have been on the increase, While a small business is unlikely to accrue such a massive penalty, lodging your taxes incorrectly can still have financial consequences. In New Zealand, the story is similar. If you pay taxes more than seven days late, you can expect a 4% penalty. Up-to-date books make filing accurate and timely tax returns easier. 

Bookkeeping can help you get investors and loans

Any time you’re asking for money, be it from a private investor or a bank, they will want to see your current books. The financial health of your businesscannot be in question. And if your books have gaps of knowledge or your ledger looks incomplete, you could miss out on critical funds. 

Bookkeeping keeps you prepared for emergencies

If the last few years have taught us anything, it’s that businesses and entire economies can be shifted unexpectedly. An accurate picture of your financial health helps you create contingency plans for anything from natural disasters, to real estate shifts, to pandemics. You can’t plan for the worst if you don’t know where you stand right now. 

Can outsource bookkeeping help?

The benefits of outsourcing your bookkeeping are many and varied. An outsourced bookkeeping service may notbe available in-person, but they can become as familiar to you as in-house staff. In fact, you may come to rely on them for the financial help of your organisation. Here is how:

  • You’ll be matched with an industry expert. A trustworthy outsourced bookkeeping service will pair you with people who know about your industry. Everything from tax implications to growth strategies will be catered to your specific needs. 
  • You can access records at any time. Using outsourced bookkeeping gives you around the clock access to records. You’ll be able to log on and see your general ledger, balance sheets, and bank records without contacting an accountant. 
  • You can grow your team as needed. With outsourced help, you don’t have to hire someone full-time when you’re ready to expand your account management team. You can simply add another bookkeeper to your virtual team for as many hours as are necessary. 

Managing your cash flow, tax lodgements, and payroll becomes overwhelming as your organisation grows. And falling behind on your books is just not an option. Leveraging the help of Visory can make a tonne of difference. Let Visory take over your double-entry bookkeeping, prepare tax returns, and business planning. You can communicate with us at any time and ask all the questions to help your business grow. You’ll never look at outsourcing the same again. 

Time to Reconcile: Importance of Bank Reconciliation and How a Bookkeeper Can Help

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Are you reconciling your bank accounts once per year? This may get you ready for tax time, but annual bank reconciliation is just the beginning. In order to grow your business at a responsible rate, you need to get a clear picture of your cash flow, understand the types of fees you’re paying, and catch fraud before it goes too far to fix. 

When you’re doing catch-up bookkeeping instead of regularly reconciling your books, you may think you’re in better shape than you are. Imagine hiring a new full-time staff member only to learn you can’t afford them? Learn more about the importance of regular bank reconciliation and when to call in a bookkeeper. 

What is bank reconciliation?

Reconciling your bank records means comparing what the bank has on record with your own internal reports. If you have a bank feed with an accounting service, you still need to reconcile your bank feed with your official bank statement. 

A lot of transactions are included in a reconciliation. According to The Institute of Certified Bookkeepers in Australia, you should periodically reconcile your internal records against the records of:

  • Banks 
  • Credit Cards
  • Barter Cards
  • Bank Loans
  • Petty Cash
  • Cash Drawer
  • PayPal

Why do you need to reconcile your bank accounts?

Your accounting records are only as useful as they are accurate. Sounds obvious, right? You’d be surprised how much missed bank fees and other small discrepancies add up and how many business owners may wave them off as unimportant. In reality, bank reconciliation can save you thousands of dollars per year. Combined with double-entry bookkeeping, which creates two records of every transaction, regular reconciliation keeps your books tidy. 

Here are some of the reasons reconciling your bank statements is so important. 

A bookkeeper looks over a bank reconciliation statement.

Catching Discrepancies

Your internal ledger says you spent $10,000 last month, but your bank statement says you paid fees totalling $500. This difference may seem small in the grand scheme of things, but if you make the same mistake each month — you’ll be off by $6,000 by the end of the year! Discrepancies can result from honest human error or fraud. If someone is skimming money from one of your accounts, you’ll notice it faster with a monthly reconciliation process. 

Tracking Cash Flow

Reconciling accounts each month gives an accurate picture of the amount of cash flowing in and out of your accounts. You’ll see if you’re actually in the black — or just thought you were. You can also reconcile your credit card receivables as a part of this process to make sure that everything has cleared that was supposed to. 

Managing Accounts Receivable 

One major source of reconciliation discrepancies is a cheque that did not clear because the account had insufficient funds. Checking your accounts receivable as a matter of routine allows you to catch these problems so you can either rebill the vendor or customer or write off the discrepancy as a bad debt. 

Making Sure Payable Transactions Have Posted

Comparing your statement balance to your internal records often also lets you confirm that important transactions have posted to your account. It would be a shame to forget that you still have an outstanding cheque out in the world — you could easily overspend on an account when it finally posts. 

Finding Systemic Issues

If you notice a pattern of individual errors or discrepancies, you may also catch a structural issue within your accounting system. Perhaps you need to change payment services or use a different bookkeeper if the same issues arise time and again. 

How often should I reconcile my bank statements?

The Australian government only recommends that you reconcile accounts “regularly,” which is a bit vague. Ideally, you should reconcile your accounts each time you receive a bank statement. If your accounts bill on different schedules, an end-of-month reconciliation is a good habit to get into. 

How can a bookkeeping service help with bank reconciliation?

An outsourced bookkeeping service can provide reporting and insights that your current staff aren’t able to keep up with. Partners like Visory provide an outside set of eyes to give your company an objective view of your financial affairs while saving you time and internal resources. Your team gets to use the insights and reporting to make smart decisions without having to do any of the work to create them. We call an outsourced bookkeeping service a win-win. 

5 Reasons Why Your Startup Should Use an Outsourced Bookkeeping Service

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You’ve been doing your own books since you opened your business. And you’ve been doing a stand-up job, if you do say so yourself. But this strategy can’t last forever. You’re probably starting to realise that you don’t have the time required to look after your bookkeeping by yourself as your business grows. Not only do you want to be ready for tax season, but you want your books to be in the best shape possible to help with cashflow management and strategic planning. 

The bottom line is your startup needs bookkeeping help once it gets off the ground. If you’re not ready to hire someone full-time, you have two main options. You can hire someone in-house on a part-time basis or use an outsourced bookkeeping service. An outsourced professional gives you full-time access to financial help without having to pay a full-time salary. 

5 Reasons to Use an Outsourced Bookkeeping Service

1. Outsourced bookkeeping helps you optimise your resources

Keeping a general ledger, learning to manage payroll, and preparing financial reports are all time-consuming. These tasks will eventually require a tremendous amount of precious resources (and the people doing them are usually handling other essential business tasks as well). Once you have more than five employees, experience accelerated growth, and/or decide to add extra products, staff, or services—it often makes sense to enlist some bookkeeping expertise. 

An outsourced bookkeeping service can help free up time in your organisation. And more time means more focus on activities that can help you grow, such as marketing, business development, and other essential growth-related activities. 

2. Outsourcing your books makes scaling more realistic

As you grow, deciding to outsource bookkeeping and accounting can help you take on new financial challenges or accounting practices. If you need to hire more full-time staff, for instance, having more bookkeeping help on call means you won’t miss a payroll period. You can also take on additional reports regarding your financial health. These reports, in turn, help you identify areas of potential growth and scale upward at the most advantageous rate. An outsourced expert can also implement double-entry bookkeeping or more complex reporting styles that are required for large companies. 

A startup business has a meeting to discuss finances..

Photo by Cherrydeck

3. Outsourcing your bookkeeping puts you in touch with experts

You know your vision for your business, you know your product or service, and you can recite your elevator pitch on demand. What you may not know is how to implement best practices for bookkeeping in your industry. Many startups are filling a niche category in the market, making your finances all the more unique. A qualified outsourced bookkeeping service does the vetting for you, so you don’t have to worry about enlisting the wrong person. 

An outsourced bookkeeping service can connect you with a financial expert who knows the best way to scale up in your industry, and which government reports you need to lodge at the end of the year. They can create a bookkeeping system that meets all your needs. 

4. Outside help with accounting helps to keep you tax compliant

Small businesses and large businesses have differing tax reporting requirements, depending on their annual income and structure. And it can be difficult to get it right. Some taxes are administered by the Australian Taxation Office or New Zealand’s Department of Inland Revenue, while others depend on the state where you operate. An outsourced bookkeeping expert will best know what reports you are required to lodge and when the deadlines are. 

5. Outsourced bookkeeping services get you ready for investors

Before an outside investor takes a chance on becoming a stakeholder, they will want to see detailed financial information. Everything from your current debts to your cash flow can help investors make an informed decision. Outsourced bookkeepers ensure your books are up to par and can take care of the reporting and insights needed to be investor ready. 

Many startups fail within the first five years of operation. If you want to make it, accurate bookkeeping is an essential undertaking. An outsourced bookkeeping service helps you connect with an industry expert, scale responsibly, remain tax compliant, and more. At Visory, we handle accounting needs for businesses that are growing from a small business to a more thriving enterprise. You will have full access to statements and reports around the clock. You can even choose a dedicated bookkeeper who will become a trusted member of your team. In short, Visory is your secret weapon to business growth. 

Bookkeeping Basics: The types of bookkeeping accounts every business owner should know

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As a business owner, you’re the top expert on your company’s products and services. An expert on controlling a balance sheet? Umm… not so much. Yet, knowing the back office like the back of your hand is essential to running a thriving organisation. Understanding types of bookkeeping accounts and tax timetables help you better plan for business growth. 

Is the language of the back office a bit daunting? Don’t be scared off. Learn the basics of bookkeeping terms and various methods of accounting. Once you better understand your accounting practices, you can become an expert on your business’s financial health.  

Basics of bookkeeping

Even creative executives should know basic practices. Budgets for social media, marketing, and advertising will be informed by available funds, after all! You’ll hear these fundamental buzzwords in any bookkeeping meeting worth its salt. Here is what they mean. 

  • Accounts payable – Your accounts payable includes any amounts owed to a supplier or other business. If you have received a good or service but not yet paid for it, your supplier’s invoice goes into your accounts payable. 
  • Accounts receivable – These are invoices that reflect money owed to your business. In short: unpaid bills from customers or clients. 
  • Assets – Assets include a combination of your accounts receivable, property and equipment owned by your company, product inventory, and liquid funds. 
  • Liabilities – Your liabilities combine accounts payable with other debts like bank loans, outstanding payroll, and credit card balances. 
  • Revenue – This term relates specifically to the money your company makes from its goods and services. 
  • Expenses – Your expenses are more than what it costs to run your business and sell your goods and services. This factors in everything from utilities and cleaning costs to salaries and insurance. 

Photo by Mikhail Nilov from Pexels

Types of bookkeeping accounts

There are various types of bookkeeping accounts and ways to calculate your taxable revenue. The way you record transactions and manage debits and credits often varies depending on your organisation’s annual income and the complexity of your expenses. Here are the most common types of accounting any executive needs to be familiar with. 

  • Cash basis accounting – Under this accounting scheme, you only record a transaction when the cash actually trades hands. Cash basis accounting is ideal for small businesses. 
  • Accrual basis accounting – When your business uses accrual basis accounting, you record a transaction when the service is complete — even if you haven’t been paid yet. 
  • Single-entry bookkeeping – In single-entry bookkeeping, you only record each transaction once. For instance, if you make a sale of $100, you only record it as revenue of $100 when using the single-entry system. 
  • Double-entry bookkeeping – When you implement a double-entry bookkeeping system, each transaction is recorded twice. For instance, when you make a sale of $100, you note it once as $100 revenue and once as $100 in lost inventory. Double-entry bookkeeping balances your credits and debits. 

Other bookkeeping terms you need to know

  • Cash flow – Cash basis accounting is the best way to track cash flow accurately, but any accounting scheme must track how much cash is coming in and out of your business. 
  • Cost of goods sold (COGS) – This term relates to the total cost of producing your products, including materials, labour, and other overheads. 
  • Owners’ equity – If you calculate total assets and subtract the total liabilities, you can calculate the value of your ownership. 
  • Balance sheet – A balance sheet lists assets, liabilities, and owner’s equity. It provides a snapshot of your financial health at any time and a look at your net assets.  
  • Manual bookkeeping – Manual bookkeeping are records kept in paper form. The Australian Taxation Office recommends keeping your records for five years. 
  • Cloud bookkeeping – Electronic records are usually produced using bookkeeping software. You’ll also want to keep these records for at least five years. 

Running your business can often remove you from the day-to-day accounting processes of your organisation. But knowing your way around a balance sheet helps you track growth and know when it’s time to scale. When you enlist Visory as a bookkeeping service, you have access to a trusted team of bookkeepers who will do the heavy lifting of record keeping. If you don’t know your way around a general ledger, we’ll show you the way. 

Preparing Your Business for EOFY 2021

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Let’s be honest: Preparing for the end of the financial year (EOFY) makes your brain hurt. Tax time is simply a pain in your you-know-what. Between unexpected tax bills and finding out your books are less organised than you thought—unpleasant surprises seem to be around every corner. Even if all goes well, the process is still laborious. 

EOFY prep can require catch up bookkeeping when you’re not up to date — filling information gaps for your accountant and looking for lost receipts. Switching to real-time bookkeeping and oversight sets you up to have better reporting for FY 22. Good bookkeeping can equal less tax and a smoother compliance process. Visory can help. 

5 ways to prepare your business for EOFY

In Australia, with EOFY  just around the corner, your business has the chance for a fresh start on July 1 each year. Here are five tips for keeping your headaches to a minimum. 

Organise your records

The best way to make EOFY painless is good record keeping. Ideally, you’ll do this throughout the year. However, if you’re scrambling this year because COVID turned some things upside down, it’s not too late to organise your paperwork. Make sure you hit these key points:

  • Write down all due dates. Lodging your tax returns and records late can result in fines or make your taxes incomplete. 
  • Gather receipts. To be prepared for EOFY, you will need everything from sales records, credit card statements, bank statements and receipts. Anything you tracked in accounts payable or accounts receivable will need to be reconciled and reported. 
  • Organise employee records. You’ll also need to find your records for all wages paid and current superannuation details. PAYG payment summaries, too, because these reports must be lodged at the end of the financial year. 
  • Reconcile bank statements. Most banks will provide records of each transaction. Make sure you have a full report for all business bank accounts on hand as you prepare your end of year financial reports. 
  • Balance the general ledger. Has your ledger been kept up to date? This tracks each transaction by category and will inform your available deductions, as well as help to reveal the overall health of your organisation’s finances. It must be up to date by EOFY. 

Plan deductions and concessions

Many businesses reduce their taxes by claiming deductions and concessions. You might be surprised at how many aspects of your business qualify for a deduction — especially for small businesses. Things like office equipment, motor vehicle expenses, rental property costs, and travel expenses are commonly deducted from your assessable income. 

Ensuring your accounting software is up to date and accurate helps you ensure you won’t miss a deduction. Also, if you’re working with a professional, make sure they are working with the latest software and that their personal licence is up to date. 

Make a compliance checklist

EOFY requirements extend beyond lodging your tax returns. In fact, businesses across Australia have unique compliance needs depending on their size, revenue, and entity type. Do any of these compliance requirements apply to your business?

  • Public Sector entities must prepare financial end-of-year statements in accordance with the Public Governance, Performance and Accountability Act 2013. For more information about the standard parameters document and more, check out this list of compliance-related documents for commonwealth entities. 
  • Media holders in Australia with foreign stakeholders must meet very specific compliance reporting. 
  • Most business entities are required to lodge at least some government reports at EOFY. Section 292 of the Corporations Act 2001 (Corporations Act) outlines more specifically what is required of various entities. This includes public entities, all disclosing companies, and some small proprietary companies. 

Write off bad debts

Writing off bad debts (unpaid invoices, for instance) can be considered a tax deduction. Gather all uncollectible invoices and other extensions of credit and have them ready for reporting. This clears the slate of unrecoverable money owed to your business’ that are owed to your company moving into the new financial year. 

Create a plan for next year

If your EOFY was a pain this time around, you don’t have to simply do it all again next year. With the aid of professional bookkeeping services, you won’t feel the full burden of the necessary reports and tax lodgements. So make a plan now for how you will switch to real-time bookkeeping and reporting moving forward. 

Visory is here to help with catch-up record keeping, payroll and insights, and ongoing internal finance support. Be ready for the next EOFY by partnering with a trusted team of experts now. 

Cash vs. accrual accounting: What’s best for your business?

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There are two primary accounting methods: cash and accrual accounting. The accounting method you choose will affect many aspects of your business, including how you report on business income and expenses. 

Small organisations can choose between accrual and cash basis accounting. However, publicly traded companies must use accrual. 

Additionally, once your business revenue reaches $10 million, you’ll need to use accrual accounting and calculate your goods and services tax (GST). Small businesses with large inventories may also benefit from it.

Let’s talk more about cash vs. accrual accounting and how to get help if you don’t know how to make the change. 

Table of contents

  • What is accrual basis accounting?
  • How does accrual accounting work?
  • What is cash basis accounting?
  • How cash basis accounting works
  • What are the main differences between accrual and cash basis accounting?
  • Accrual accounting or cash: Which one is best for my business?

What is accrual accounting?

With accrual accounting, you track your income and expenses when they take place, regardless of when you pay bills or receive payments. For example, you’d record an invoice when you send it, even if your client hasn’t paid yet. 

Accrual accounting uses a double-entry system, meaning that you track twice, once for debits and another for credits. Double-entry can help prevent fraud and give you a more realistic view of your cash flow. 

Organisations of any size can use it. It provides a more complete financial picture, even when you don’t get paid right away for your products or services.

Here are the key pros and cons of the accrual accounting method:

Pros  Cons
It’s helpful when tracking a variety of accounts and large amounts of revenue and expenses.  It’s more complicated because you have to track actual cash on hand plus outstanding income and costs. 
Making financial projects and planning for the future is easier. Financial reports may need adjustments for as-yet-unpaid amounts when discussing current balances.
By logging cash flow with double entries, it’s simpler to catch mistakes or fraud. Bookkeeping and accounting may be more time-consuming.
It meets acceptable accounting practices and is the standard for public companies.  You could end up paying taxes on income that clients and customers haven’t paid you yet.

How does accrual accounting work? 

Accrual-based accounting is an accounting method that tracks all outstanding credits and debts as if they have already happened. 

If you complete a service, you report it as though you’ve already been paid in your books. Then you debit any invoice totals even if you have not cut a cheque yet. You can see all of your transactions—including long-term, future ones—in one place.

What is cash basis accounting?

Businesses that have an aggregate turnover of less than $10 million may use cash basis accounting to calculate goods and services tax (GST). 

Your internal finance team will only include transactions in tax reporting when money changes hands. In other words, when you make a sale, you don’t have to record revenue until you actually get paid. 

Regardless of annual GST, approved government schools, charitable institutions, and gift-deductible entities can use cash basis.

Here are some pros and cons to consider: 

Pros Cons
It works best for small companies that don’t have long payment cycles. Cash basis accounting can’t show you the debts that are outstanding, and accounts receivable payments that you haven’t settled. 
Cash accounting helps you track cash flow and determine what is in your bank accounts. You may not be prepared for incoming invoices from vendors or suppliers.
It’s simple because you only record transactions at the time they occur. Not all businesses can use cash accounting. 

How cash basis accounting works

With cash basis, you only track transactions when they happen. Each time your company makes a profit, you add to your total revenue. 

When you receive an invoice, you subtract. What it can’t show you is upcoming debts. These may include monthly accounts receivable cheques or recurring bills. 

What are the main differences between cash and accrual basis accounting?

Cash vs. accrual accounting differs primarily in the way you keep records and detail your cash flow. 

It’s easier to track with cash accounting because you only track funds when they come in and go out. However, it doesn’t show the full picture of your financial health. Your cash flow may look favourable, but you could have thousands in unpaid costs that are not readily visible. 

Accrual is more complex but also gives you a more accurate picture of your finances. You’re not tracking only actual funds, but also expected income and costs. If you have a floor installation business, for instance, you would report the project when it’s done — even if the final invoice is outstanding.

Cash or accrual accounting: Which is best for your business?

Either method works for small businesses, but large businesses should stick with accrual. Your internal finance team may need an online bookkeeping service to help with accrual accounting. 

When to use cash basis accounting When to use accrual accounting
You have a simple revenue stream with little time between invoices and payments You have complex revenue and cash flow
You value short-term cash flow over long-term projections You need to know your cash flow total including future projections
You generate less than $10 million a year You generate more than $10 million a year

Small businesses can choose between the two accounting methods. Larger companies must use accrual basis accounting in Australia by law. But even if you don’t meet the mandatory threshold, you might want to switch to accrual to get a better picture of your business finances.

Connect with Visory today, and our team of internal finance experts will get to know your business and which accounting method is right for you. You’ll partner with a team dedicated to your accounting needs and be able to access your books in real-time.

 

Let’s Play Catch-up: What is Catch-up Bookkeeping?

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Has it been a while since you cracked open your accounting software? Oops. When your business grows exponentially, or your bookkeeper hits the road, it doesn’t take long for your books to fall behind. And that can lead to catastrophic results. Catch-up bookkeeping helps you right the ship and make sure you can still keep the lights on. In short, it’s the process of getting your books current and catching any mistakes that you may have missed. 

Not only can catch-up bookkeeping give you a clearer picture of your revenue and overall financial health, but it gets your accounts receivable and accounts payable back on track. In addition, managed books make it easier to grow and help you stay compliant when tax time rolls around. Learn more about catch-up bookkeeping and when you might need it. It might be more often than you think.

What is catch-up bookkeeping?

Catch-up bookkeeping is the process of getting your financial records up to date. This necessary part of bookkeeping includes everything from analysing bank statements to reconciling your accounts receivable.

You don’t just require catch-up bookkeeping after a sustained period of neglected books. Rather, anytime you need to reconcile your accounts or migrate your data, you can use a catch-up bookkeeping service to confirm that you’re working with current information. If you have even a short period between a new bookkeeper, you’ll also want to do some catch-up bookkeeping to start your new staff member off on the right foot. 

When does your business need catch-up bookkeeping?

There are lots of times when you might need to catch up on your books. Some are for your own convenience, while others relate to serious government penalties. Under Australian and New Zealand laws, you have a responsibility to maintain accurate business records. You’re also required to track any transactions related to taxes and superannuation. Your organisation should be prepared to substantiate any of the information submitted on your tax return. 

Tax ready strategy aside, here are some of the most common times we recommend catch-up bookkeeping:   

  • When you need to add accounts. Are your records incomplete? If you’ve been using a new business credit card for a while and haven’t added it into your accounting software then you may be missing months of transactions. You can’t have accurate financial reporting if you don’t actually know what’s coming in and what’s going out. 
  • When you have unreconciled transactions. Whether it’s for a month or just a few days, your general ledger should contain all receipts, payments, and invoices listed by transaction. Missing transaction data could throw off your entire financial picture. Bringing the data up to date means your ledger is back in business. 
  • When you’re migrating to a new software system. Moving over to Xero or similar accounting software? You want your data labelled properly, and that means a little catch-up bookkeeping to make sure you’re entering the most recent and accurate figures. It’s much easier to get everything up to date in your existing software than fix it in your new software than to determine what went wrong in six months. 
  • When you need to prepare reports. If you’re seeking additional funding or want to show stakeholders the financial state of your company, playing catch-up on missing data is crucial. You can’t generate an accurate report without up-to-date figures. You could miss out on an investor if you’re using incomplete reports. 
  • When you aren’t being paid correctly. When your business is not being paid correctly, you may not be able to operate. If you suspect your customers owe you money, you need to catch up fast! Not only could your reporting and tax obligations be incorrect, but you could be leaving money on the table which could be put towards extra staff or growing your business. 

After my books are caught up, what is next?

Once you’re confident your books are caught up, you’re ready to sail, right? Not so fast. Bookkeeping is never a “set and forget” process. In fact, it never ends. Therefore, having a good bookkeeping service at your side is essential to ongoing success. 

At Visory, we partner your organisation with a team of bookkeepers who know your industry inside and out. They can complete catch-up bookkeeping on your struggling records and help to keep everything accurate moving forward.  

Catch-up bookkeeping is essential if you know if your books are unreconciled, payroll hasn’t been processed or your tax office is knocking. Catch-up bookkeeping also comes in handy when you’ve simply been short-staffed, and you know some receipts might have slipped through the cracks. Contact Visory to complete your catch-up bookkeeping, get your books ready for new software or to enable accurate reporting and insights. We’re always here for you.

Life After COVID: How a Bookkeeper Can Help Your Business Recover

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COVID-19 may not be entirely behind us, but the protections businesses enjoyed at the start of the pandemic are mostly gone or coming to an end. For example, JobKeeper is no longer in operation in Australia, and creditors are allowed to pressure companies who owe as little as $10,000. In New Zealand, some wage subsidy programmes are still available as of March 2021, but only if your city activates an Alert Level 3 for seven days.  In short, your organisation needs a plan for the future of your finances and business recovery. 

An experienced bookkeeper can help you get your paperwork in order which can help your accountant advise you on how to create a path toward profit. Instead of going it alone, consider how you can build a team of financial experts who can take you from the brink of insolvency to thriving once again. 

What roles does a finance team play in your business?

An outsourced finance team does a lot more than process your payroll and track your transactions. With the right people, an outsourced finance team can become a vital part of your internal team as well. 

Some of the most important tasks a fiance team for business include:

  • Financial reporting and forecasting. Accurate reporting can help your accountant forecast profits and losses. Forecasting will help you remain profitable after COVID and scale at a realistic rate and. 
  • Track down accounts receivable. Your outsourced financial team can chase invoices that went unpaid during the pandemic, which will help you balance your books on the other side of COVID.
  • Identify cash flow problems. Are you low on funds at the end of the month? Your outsourced financial experts can send you reporting and insights so you can create strategies for keeping more cash on hand.
  • Prepare financial statements for your accountant. Navigating PAYG instalments correctly reduces the risk of incurring government fines and penalties, especially as COVID era protections are lifted.  

How can an outsourced internal finance team help business recovery after COVID-19?

Businesses with an exit strategy in place are more likely to survive any crisis in one piece. In terms of COVID-19, this means being ready when payroll assistance and other forbearances are done for good. And even then, you may still need some help. Can you maintain a solid financial position moving forward without a trusted financial team? Unlikely.

In a post-COVID world, Visory’s financial experts can meet with your accountant and senior staff to help you establish a business recovery timeline—with contingencies included (what happens if there are new travel restrictions down the line?). Our bookkeeping and financial experts can help create a new budget for the next few years; your services/prices/expenses may have changed during COVID. With data and insights, you can determine when you’re ready to bring employees back full-time and evaluate the current salary structure for any necessary changes.  Having in-depth and accurate reporting and insights is essential for your accountant to make the right decisions. Visory can supply your business with an expert back office team that can give your business the reporting it needs to create strategies for recovery and help your team interpret the data. 

Finally, you’ll also need accurate financial records if you wish to ask for a bank loan. Your business recovery will require an expert financial team that is well versed in what businesses are being offered at each stage of post-COVID aid. Your accountant will maintain your general ledger and be on standby to request government aid if it becomes available. They can file applications, complete the necessary reports, and handle any appropriated funds. Visory can ensure that your accountant and back-office staff have the reporting and insights required to apply for a loan.

Why you should outsource your back office

You may not be able to in-house back office support on the heels of COVID. Many businesses have had to cut staff or roll back hours. When you outsource your bookkeeping and greater reporting needs, you can access a whole team of financial experts while saving money. 

An outside bookkeeping service like Visory can also give you an unbiased view of your business. You have been through an emotional few years, and an outsider can be objective about the necessary steps to recover fully. These decisions may include raising your prices, eliminating some services, or making other difficult changes that would be hard to admit are necessary on your own. 

Visory has a clear pricing plan that makes it simple to budget in the future. We know that many businesses in Australia and New Zealand are facing insolvency. Our team includes people with years of back-office support in various industries who can scale your services up and down as necessary. Plus, our financial experts and services are at the ready when you require an additional bookkeeping service, payroll, or other help. 

Having an expert team on your side can make all the difference in times of uncertainty. Surviving COVID as a small business means accurate books and a realistic plan for the future. Visory can help you with business recovery and more, including ongoing payroll and bookkeeping services. 

5 Ways Outsourcing Bookkeeping Can Help Grow Your Business

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Accountants are an essential part of any growing business. Not only can a good accountant or bookkeeper keep your balance sheets balanced, but they also help you scale up by taking a myriad of essential tasks off your plate. These tasks include: helping you create your budget and accounting policies, preparing financial statements for stakeholders and the government, keeping track of operating costs, maintaining accounting systems, and preparing tax returns. 

But how do you build a solid accounting team? Even for a medium to large business, the benefits of outsourcing your bookkeeping can’t be ignored. An outsourced finance team can handle everything from your itemised general ledger to your payroll. You get the help of an accounting pro without needing to hire a full-time staff member. Outsourcing often frees up money and time for innovation and product/services expansion, which helps you scale seamlessly. 

Here are five benefits of outsourcing your bookkeeping we think you should explore as your business grows. 

Outsourcing bookkeeping saves money that can be reinvested

As we explained in our guide to outsource bookkeeping, the average salary for a bookkeeper in Australia is almost $70,000 per year and in New Zealand around $68,000 (NZD) per year. Meanwhile, you might be able to get outsourced bookkeeping for as little as $1,000 per month. Imagine how much money you save if you have access to an entire outsourced team instead of hiring in-house bookkeeping experts. That’s a lot of money left for other essential tasks. 

With the money you save from outsourced accounting work, you can reinvest in your company’s other departments. This could mean increased product development, a bigger marketing budget, and other key expenses you need to grow your business. Not only can outsourcing save you money now, but it can set you up for future success. 

Outsourcing bookkeeping is scalable

The right outsourced bookkeeping team can scale with you. What does that mean? As your business gets bigger, your outsourced team can grow with you. A company like Visory can tweak your financial team as needed. That means adding new members to your team with a specific speciality, creating redundancies when necessary, and allowing you to grow your business without pausing to hire a new full-time employee. 

In addition to adding new virtual team members to your business as you grow, the benefits of outsourcing your bookkeeping include assigning additional functions and responsibilities. Some of the things an outsourced team can do for you as you grow larger include:

  • Scaling up back office processes such as payroll and accounts payable that drive your business forward
  • Take on additional financial reports, such as quarterly reports or trial balance briefs
  • Analysing your company’s financial strengths and weaknesses so you can make informed decisions that improve your performance
  • Make accurate forecasts about the future of your business

Outsourced bookkeeping can keep you compliant

Outsourced finance professionals can also help keep you compliant. You don’t have to worry about chaos in your internal financing when your internal financial experts are on the case. Whether you’re reporting to the Australian Taxation Office (ATO), the Australian Securities and Investments Commission (ASIC), New Zealand Companies Office, or New Zealand Inland Revenue — you won’t be caught breaking the rules with an expert who promotes good practices. Your remote bookkeeper can also stay on top of your Business Activity Statement (BAS) schedule. Staying up to date on day-to-day data entry and regular book balancing is a lot easier with a robust finance team. 

Outsourced bookkeeping and accounting can help you obtain additional funding

Want to obtain additional funding? You better hope your books are in order! Or, hire an expert team of financial professionals to double-check every figure. As you scale up, potential stakeholders will look for specific financial records. These may include:

  • Historical data about your company’s growth, including income statements and balance sheets
  • Projected financial figures that include projected cash flow and capital expenditure budgets

Outsourcing can relieve the burden on your management team

When you outsource your financial reporting, you ease the entire management team’s overall burden. No one will have to drop other work to process payroll or vet potential tax accountants. The company’s leadership can remain focused on your business’s growth and innovation. Outsourcing bookkeeping allows you to retain accurate internal financial data, so informed business decisions can still be made, but management is free from the mundane day-to-day reporting that may slow down growth in the long run.

The benefits of outsourcing your bookkeeping include freeing up time and money, easing the burden on executives, and scaling up faster. If you need a team on your side, consider Visory. We can pair you with a bookkeeping team that is specialised in your field and ready to get to work today.