12 ways bad bookkeeping can hurt your business
If you have a small business then you know how critical good bookkeeping is to the success of your business. You’re probably also aware of just how confusing, tedious, and consuming it can be. But more than simply being an arduous task, if not done correctly, it can cause a great deal of strife down the track.
Here’s 12 reasons why bad bookkeeping can hurt your business. Avoid these and you’ll avoid hefty fines later on.
Not updating the books regularly
Failing to update your books on a regular basis will lead to bad business decisions, as the numbers wont be current or relevant. Deciding if you’re able to hire more staff, or replace old equipment, will be that much harder if your books aren’t up to date . Plus, no one wants to spend hours and hours catching up on missed bookkeeping – commit to it on a regular basis and you’ll save time, and money.
Lack of bookkeeping knowledge
This might seem obvious but keeping up to date with the different guidelines and rules is the only way to manage your books properly. Knowledge of proper compliance keeps money inside your business by minimising errors and lost time. If you’re spending way more time on the books than in your business, then it’s probably time to think about outsourcing.
No paper trail
If you don’t have your receipts organised then it becomes difficult to claim expenses. On top of that, if you make a claim and don’t have that important paper to back it up, you will be denied your claim and fined a hefty amount.
No information with receipts
In many cases a receipt alone is not enough to prove a business expense. Every expense has to be reasonable, must be for business, and have the correct supporting information. For receipts such as taxis, meals or entertainment, it’s a good idea to indicate details on the back of the receipt such as the client’s name your are meeting, and the times and reasons for the meeting. This will provide proof of business expense should you be audited.
Not separating business and pleasure
We’ve talked before on this blog about why separating your personal and business accounts is a good idea. Keeping your business expenditure separate will make it easier to prove and reconcile your accounts later and avoid potentially hefty fines.
If you invoice late, this sets a particular standard and tone for your business. A good business sends out invoices quickly or routinely. Cash in the account is better than cash left on the table.
Bad record keeping
Financial records must be kept for five years. As your business grows and changes your financial records will become more complicated. Your accountant will want to check all your previous information and past returns. The more information you have the better prepared you’ll be, and the easier it will be for your accountant to track what’s been happening in your business.
Make sure you are paying your staff on time and including all the necessary deductions. Making simple mistakes here will cost you money later on (and the possibly loss of good employees), which will have a long-term negative effect on your business.
The goal with every tax return is to maximise your expenses to reduce the tax you owe. Miss even one and it can have a tremendous impact. Make sure you know exactly what you can, and can’t, claim – you may be surprised.
Not counting inventory regularly
Not counting stock on a regular basis can lead to overstocking or understocking, and cause your business to lose money. If you aren’t tracing your inventory then you aren’t tracking your cost of goods sold, which have a huge effect on your businesses profitability.
Improper logging of vehicle expenses
If you use your vehicle in business, you need to keep a log of the kilometers driven. This is an expense that is often overstated and the ATO knows this. Not knowing the rules and not having accurate numbers can increase your chance of loss during an audit.
Not knowing your limits
If you’re a small business owner and you don’t have the time to dedicate to proper bookkeeping, then you need to know when to outsource. A qualified bookkeeper knows all the necessary guidelines and rules and a good one will know how to manage your data systems and even advise on a better one for your specific needs. Save yourself the hassle and worry, and give yourself back the time, and freedom to devote to your business.
In the end good bookkeeping will make the difference between the success or failure of your business, no matter if it’s large or small. Avoid these pitfalls by staying informed, up to date, and organised.
Need help with your bookkeeping? Give us a call today for a chat and a free bookkeeping analysis. We’re in Adelaide Australia on (08) 8330 4061 or email us here.