7 of the Most Common Bookkeeping Mistakes

You’re motivated, savvy, on the move… and incredibly time-starved. Between growing your client base and seeking new investors, it’s common for day-to-day tasks to fall to the wayside. Just don’t let bookkeeping be one of them. Small bookkeeping errors add up to a major landslide. A few missed financial transactions here and there can throw off entire financial reports, or even lead to tax implications. Here are seven common bookkeeping mistakes you can avoid with the right bookkeeping help. 

7 of the most common bookkeeping mistakes and how to avoid them

Businesses of all sizes experience bookkeeping errors. From undocumented expenses to unfiled taxes, accounting mistakes come in all shapes and sizes. You could face not only unexpected losses, but government penalties if you fall into one of these seven avoidable traps. 

1. Mixing business and personal

The best financial practice for any business — even a small- or medium-size organisation — is to separate personal and business transactions. When you’re trying to calculate tax deductions and reconcile your end-of-year reports later on, blended finances are a headache. You will have less to untangle later if you use a designated business account now. 

2. Using accounting software incorrectly

Popular accounting software programs can do a lot of heavy lifting. But they are still subject to human error. In other words: You can’t skip taking the tutorial. Do an annual check-in with your accounting software and ask yourself: Am I using the most up-to-date version of this software? Can this software handle the scale of my bookkeeping needs? Is this software updated with the latest tax rates?

3. Falling behind in bookkeeping

Another of the most common bookkeeping mistakes is simply falling behind. Even a month of missed reports stops you from accurately understanding your cash flow and current debts. Keeping a daily general ledger the right way means staying on top of every single transaction that comes in and out of your accounts. 

4. Tossing your records too early

Did you know the government requires your business to keep certain financial records for a set period of time? It turns out you can’t just send everything to the shredder when tax time is over for the year. In Australia, you should keep written evidence of your financial reports for five years after you lodge your tax return. In New Zealand, financial records should be kept on hand for seven years after you lodge the year’s taxes. This includes everything from invoices and receipts to wage books and vehicle log books. 

5. Incorrectly paying employees

If you have a full-time employee classified as a casual worker, the mistake could cost you thousands. You may be held responsible for back wages plus interest, and face legal penalties. What might seem like a small formality is in fact a major decision. Familiarise yourself with employee classification in Australia and New Zealand to avoid this costly mistake.  

6. Inaccurately reporting payroll and sales tax

A major part of keeping accurate business finances is paying the proper tax rate. Since payroll taxes vary across states and territories, you may need some help sorting out how to set up your payroll system the right way. In this case, it is always better to triple check than risk a hefty penalty at the end of the year. 

You must also make sure your point-of-sale systems are set up with the right sales tax (10% in most cases in Australia and 15% for most goods and services in New Zealand). Rest assured, if you don’t pay enough in taxes now, you will end up paying for it later. 

7. Hiring an inexperienced bookkeeper

Many of the above errors trace back to one common misstep: hiring a bookkeeper who is not able to keep up with your evolving bookkeeping needs. Someone with more experience can manage financial reports, prepare an accurate balance sheet, and stay on top of tax requirements. If you keep running into inaccuracies, it may be time to enlist a more robust bookkeeping team to round out your back office and keep things in line. 

If you’re a growing business in need of additional help, enlisting an outsource bookkeeping service may be the answer. Visory can help your organisation avoid these mistakes. You will be connected with a team of experts who know your industry inside and out, and you will have 24/7 access to your financial reports. Contact Visory today to learn more about our suite of account services that support your back office and help you avoid common bookkeeping errors.

Cash vs. Accrual Accounting: What’s Best For Your Business?

Graduating from a small-to-medium sized business to a larger enterprise means business as usual may need to change. This includes how you report on your business income and expenses. While small organisations can choose between cash basis accounting and accrual basis accounting, once you’re a big deal you can’t report your earnings on a cash basis anymore. 

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

What is cash basis accounting?

If your business has an aggregated turnover of less than $10 million, you can choose to calculate your goods and service tax (GST) using a cash method of accounting. What does this mean? Your internal finance team will only include transactions in tax reporting when money changes hands. In other words, when you make a sale, you’re not responsible for recording it until you actually get paid. 

When comparing cash vs. accrual accounting, here are some things to know about cash basis accounting:

  • This method of accounting works best for small companies who primarily deal with cash transactions. 
  • Cash accounting helps you track cash flow and determine what is in your bank accounts.
  • If you receive an invoice from a vendor, you don’t record it until you pay it. 
  • If you send an invoice, you don’t record it until the payment clears. 
  • Regardless of annual GST, you can use this method if your organisation is a government school, endorsed charitable institution, or gift-deductible entity.

What cash basis accounting can’t show you is the debts that are currently outstanding, and accounts receivable payments that have yet to be settled. 

What is accrual basis accounting?

With accrual basis accounting, you track your costs and earnings when they take place, regardless of when you get paid or when you make payments. This type of accounting is required of large, enterprise companies. It can also be good for organisations of any size that don’t get paid right away but want a full financial picture.

Here are key takeaways for the accrual accounting method:

  • This method is helpful when tracking a variety of accounts and large amounts of revenue and expenses. 
  • You can expect the method to be more complicated, because you have to track actual cash on hand plus outstanding income and costs. 
  • If you complete a service, you report it even if it hasn’t been paid yet. 
  • If you receive an invoice, it’s recorded as a debt even if you haven’t sent cash yet. 

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

Cash vs. accrual accounting differ primarily in the way you keep records and detail your cash flow. Here is a simple breakdown. 

Cash basis accounting

When you are tracking your taxable income using cash basis accounting, you have an accurate idea of your cash flow. You’re only tracking funds as they actually come in and go out, which means your reports are better aligned with cash flow reports. On the other hand, your reports don’t give a full idea of financial health. Your cash flow may look favourable, but you could have thousands of dollars in unpaid costs that are not readily visible. 

Accrual basis accounting

This type of record-keeping is more complex, but also yields a more accurate picture of your total financial earnings and expenses. You’re not tracking just 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. This doesn’t give you the most accurate picture of real cash flow, since you’re counting income that isn’t on hand yet. The reporting is more complex because you are recording money owed to you and money you owe. 

Which one is best for my business?

Either method may work for small businesses, but large businesses should stick with accrual basis accounting. Your internal finance team may need to include a bookkeeping service given how much more involved accrual basis accounting is than simple cash record keeping. 

Small businesses can choose between cash basis or accrual basis accounting, with cash basis accounting ideal for businesses that deal in small cash transactions. 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 basis accounting to get a better picture of outstanding debts and anticipated income. 

Connect with Visory today, and our team of internal finance experts can help you set up accrual-based accounting Wrap up the main arguments and then soft CTA on how Visory can help with setting up your accrual-based accounting.

Advances in technology influencing small business

How will this impact us in the future?

Small businesses need to consider the rapid shifts in consumer expectations and how they can harness technology to remain competitive.

A prevailing theme of modern society is instant gratification. This has largely been attributed to significant advances in technology. We are now able to access services and interact with others instantly, from wherever we are.

As consumer expectation shifts, it’s important for small businesses to harness technology to ensure their business offering is in line with their customer’s needs and expectation.

It’s not only the consumer that benefits from new technology – savvy businesses are using it to increase efficiencies within their own business.

We’ve taken a look at a few of the big technology changes currently influencing the small business world and speculate how this might impact the world down the track.

Off in the clouds

In simple terms, cloud accounting involves accessing accounting solutions online. Some well-known cloud accounting providers include Xero and MYOB. These systems have become extremely popular with small businesses due to their ease of use and ability to decrease administration hassles.

So what does the future hold for cloud accounting?

“Soon using the cloud will just be the norm. Just like email overtook faxes, it will soon become adopted on a widespread level as people get used to it,” said Mary O’Driscoll, Findex cloud accounting expert.

“Real time data obtained from cloud accounting will also help businesses gain a deeper insight into their financials,” Ms O’Driscoll said.

Moving forward, businesses could be driven to a deep degree by cloud related data, which will enable them to implement improvements, create efficiencies and find new ways to engage customers.

Robo-delivery

Will robots one day handle product delivery to and from your business? As technology for autonomous vehicles as well as affordable drones advances, this is a very real possibility.

In 2016 we’ve already seen some amazing concepts showing this idea off domestically. Domino’s have announced plans to launch a pizza delivery droid in early-2017, which can zip around cities at 20 km/h, while Australia Post trialled the use of parcel delivery drones in April and Singapore recently launched self-driving taxis.

As this technology advances, there is great potential for businesses to significantly reduce the costs and time associated with product delivery in the long-term.

A cashless society?

The use of physical currency is becoming increasingly less common and necessary, with convenient technology solutions able to facilitate payment more efficiently.

Contactless payments have simplified the use of cards for small transactions, while cheap and easy to use point-of-sale systems have allowed businesses to craft a better way for clients to pay.

Earlier this year, there was significant media coverage about a Brisbane cafe doing away with cash. Customers could pay only via card or by purchasing a special refillable coffee cup with an embedded chip linked to a credit card.

Breaking the bank – how much will we rely on them in the future?

Meanwhile, the way we bank could also undergo a shake-up, with companies like Uber showing how technology enables businesses to run without banks.

In the US, around a third of Uber drivers joined the company with no existing bank account. To get around this, Uber themselves have made signing up for a debit card and account a part of the application process, making the company the largest acquirer of small business bank accounts in the US.

Citing this case, Findex innovation program manager Andrew Lai said that “one day down the track, rather than being tied to a traditional bank, your finances could well be managed through seamless integrations with Google or Facebook accounts.”

What does it all mean?

Despite the hype of automated processes, the key element of business will always remain the people, according to Mary O’Driscoll.

“People still like dealing with people. The key will be making the back end work while ensuring the customer has a strong personal touchpoint,” O’Driscoll said.

While the future will see systems develop in a way that will enable them to process information and tasks in a more efficient manner than ever, at the end of the day, the best businesses will still need to focus on how they engage with their customer one-on-one.

Harnessing the Cloud: If cash is King, data is its Queen

A recent study found nearly half of Australian businesses are looking to increase cloud infrastructure spending in 2020, and 59 per cent now have ‘cloud first’ policies when it comes to making new investments[1].

Cloud accounting allows your business, its administration employees and advisers to access its financial information live from online servers, anywhere at any time, which helps your business make better choices as it can use ‘real time’ information to assist its decision making.

The power of data lies in both its timeliness and its ability to be tailored to the individual business. Raw data by itself is difficult, if not impossible to utilise effectively. However, by using integrated systems such as optical recognition, live bank feeds, and industry specific software that is linked to the core application, your business can start to approach the detail and data integrity of larger organisations.

By increasing your business’ level of data accuracy, you’re not only better positioned to meet your day to day compliance needs accurately and efficiently, but you’re also setting up your business to take advantage of the data at its disposal by summarising and presenting the data in ways that are specific and useful to your business.

The key to making the most of the data available to you is to delve into the key drivers of your business and the industry it operates in. The lead indicators of a coffee shop will differ to the lead indicators of a freight business, so it’s critical to narrow in on the data points that really make a difference in your business.

Once decisions have been made about the core drivers of your business’s success, most cloud systems will allow you to tailor reports to focus on selected data points, either from the core platform or from a linked industry-specific application.

Undertaking an analysis of the key trends you have identified across these data points can then be developed into a set of visual management reports that allow you to have a finger on the pulse of your business on a day to day and week to week basis.

Identifying the key business drivers and the underlying data flow that reports on them is a great foundation for building a reporting pack that helps you as a business owner analyse current trends and make solid decisions about future direction, quickly and accurately.

To maximise the return on investment in your cloud data, diarise time each week, and each month to review the reports that your cloud system produces for you to assess your performance against current goals and re-set goals and actions for the next period.

Lastly, never forget the maxim, ‘rubbish in, rubbish out’. Good data quality should not be taken for granted in the world of data integration.

For assistance identifying your key business drivers and implementing cloud solutions, please get in touch with our team.

[1] Australian IAAS Market Soars Beyond $1.3BN