Why Avoiding Your Bookkeeping Could Spell Disaster
The latest lockdown in Greater Sydney has had our phones ringing hot with clients and new enquiries needing assistance with understanding and determining their eligibility to the NSW Covid-19 Support packages. What stood out to us was how important keeping your accounting or bookkeeping up to date. Late last week I had a call from a man who wanted to know if he was eligible for the Support grant and wanted to get a letter from an Accountant to support his claim. He wasn’t a client so there was obviously some information that I needed so that my team could review his eligibility and help him out if we could. The problem was he was 3 years behind in his bookkeeping. No financial and no tax returns. Not only couldn’t we determine his turnover in June / July 2019, but he couldn’t tell what his income was in June / July this year. So, confirming a reduction in income was impossible without getting his Accounting and lodgement up to date. The process of assessing eligibility becomes far more challenging & time-consuming.
This was an outlier for us. As our practice is a Platinum Xero partner, we have worked without clients to ensure that they do keep their figures completely up to date – ideally using Xero. This made the process of getting the letters they require to lodge their application for the Covid-19 support grant relatively simple as it was a quick process for our team to determine the client’s eligibility and grab the numbers that we needed to populate the letters. We highly recommend Xero to business owners because it makes bookkeeping easy for business owners and keeping your numbers up to date is a simple process. There are no issues with running reports across financial years or version control like their competitors still require. As a company, they support small businesses in producing various ad-hoc reports to assist with the assessment of Stimulus eligibility.
Whilst lodging an application for a Covid-19 isn’t the only reason why business owners should be staying on top of their bookkeeping, it does highlight the importance of being up to date. There are many other great reasons why it is important to make time to get and keep your number current.
Planning and Decision Making
Cashflow projections and budgeting is impossible without knowing your current financial position. No or old numbers will make it difficult for a business to quickly pivot to either take advantage of an opportunity or to react to a situation that may threaten the business such as a pandemic. Over the years I have seen businesses stall and fail not because their product or service wasn’t right but due to poor decision making. If your numbers are wrong and you put any kind of reliance on them for your decision-making, you will get it wrong more than you get it right.
Understanding Your Business
Whether it is developing pricing, negotiating with suppliers, or hiring your team, knowing your numbers is essential. A good gauge about the profitability of your business creates confidence in the market and permeates through everything the business does from marketing to maintaining inventory. For us, a key indicator that a business is strong is when the business owners already have an idea about their tax position prior to the preparation of their Financials.
Spend Better With Your Accountant
If you are still dropping off your bank statements and invoice to your accountant in a suitcase you are not spending your time or money with them wisely. Automating this process with Bank feeds is now more than a decade old – so this isn’t new. I am still amazed at the time wasted by small business owners who are still doing things the same way they did back when John Howard or Kevin Rudd was Prime Minister. If you can automate & streamline this process (which we can assist you to do) – we then assist invaluable areas like tax planning advice, business structure advice, or cashflow projections
Reporting requirements have changed over the years. Single Touch Payroll, Superannuation Clearinghouses, Contractor payment reporting are just some of the mandatory requirements for a business that did not exist a decade ago. You need to have systems in place to stay compliant. It is only a matter of time before mandatory E-Invoicing becomes a requirement
Non-Lodgement penalties can be steep. For a small business, the ATO currently calculates the failure to lodge penalty (FTL) at 1 penalty point every 28 days past the lodgement date. They apply this to:
· Activity Statements
· Tax Returns
· FBT returns
· PAYG withholding annual reports
· Single Touch Payroll reports
· annual GST returns and information reports
· taxable payment annual reports.
As a guide, a penalty unit is $222 for events after 1 July 2020. Obviously, this should motivate business owners to keep their records current, including lodgements.
Easy Funding & Access To Finance
Being able to quickly produce an accurate Balance Sheet or Cashflow Projection will make the process of getting funding a much simpler process. Business Owners may be seeking funding for equipment, overdrafts, to take advantage of a rate offer, or for debt consolidation. As Accountants, we are often asked to prepare interim Financial Statements or cash flow projections for clients that are seeking funding. This process for them is less onerous on their time and much more affordable if their Xero file is current and accurate.
Knowing your numbers should be a priority for all business owners. Taking advantage of products like Xero and spending time setting up and maintaining accurate and timely bookkeeping has countless benefits for your business and could be your savior when disaster strikes.
We recommend Xero Accounting Software – for now, other reason than it is the best. If you’d like to streamline your business, reach out to us & we can assist.