When it comes to taxes and bookkeeping, it is often a struggle for us all. It is usually an extremely lengthy and tedious process that most individuals try to skim over quickly and get out of the way so they can get back to focusing on their business. Unfortunately, the tax obligations need to be done properly. There are quite a few common mistakes of bookkeeping that can easily be avoided once you are aware of everything that could go wrong.
- Not Allocating Enough Time
Many business owners who try to do the bookkeeping themselves and avoid seeking professional assistance can put their business at risk. Tasks like bookkeeping, which relate to tax obligations, require detail and time to get it right.
Most business owners do not allocate the right amount of time to the tedious numbers and try to skim over this important task. Whenever we skim any task the risk of getting it wrong and making mistakes is high. If you accidentally leave out important information and then finalise an incomplete document, this could lead to serious tax implications down the line.
A subcategory of this would be leaving all your bookkeeping duties to the last minute, meaning that you may not have enough time to fix any mistakes.
The insight is that the task of bookkeeping is a professional skill set because they know what to record, how to record it, and most importantly, the accounting changes that affect a business on an ongoing basis. This service saves you time and frees up more of your time to focus on growth and taking your business to the next level.
2. Not Keeping Track of Small Purchases
Another common mistake is that many businesses fail to track small purchases over time. They do not keep receipts and therefore forget to claim. When you tally all the small purchases they do add up to a larger amount.
Bookkeepers are experts in what “small purchases” you can claim as a business expense and can advise on smart ways to track, For example, in COVID affected times, working from home could mean that you require a monitor, and thus if you keep the records for this purchase, you can claim it back later. Speaking on a much smaller scale, even if you may have sent a loyal customer a little thank you gift or caught up with them over a quick cup of coffee, many of these small payments that you keep track of can amount to a lot when you are trying to file for tax claims.
3. Not Recording Your Expenses Properly
It is crucial to track all expenses related to running a business so these costs can be taken off your total income at tax time and it gives you a better sense of overall profitability throughout the year.
If you do not track and record your expenses properly you will overstate your annual income. This is especially important at tax time since you’ll want to be sure to take all the expense deductions that you can. In-correctly allocated expenses can result in missing out on valid tax deductions that should rightfully be claimed. You could also incur penalties for incorrect GST coding of entries.
4. Mixing Up Personal and Business Bank Accounts
We always recommend that businesses have separate accounts to avoid confusion and problems. Keep personal and business accounts totally separate for the best chance at tax efficiency.
Even if you have separate accounts for business and personal, be cautious when you use personal funds to pay for business expenses and vice versa. You might forget to account for the expense and miss out on tax savings! Failing to do so will make it hard to figure out which expenses are business-related and deductible from your taxes.
5. Not Reconciling Your Books
One of the most fundamental aspects of bookkeeping is reconciling your books with your bank/credit statement each month. This means the data entered is compared to your bank/credit statements to ensure that there are no discrepancies.
If there are any discrepancies, they need to be dealt with straight away. Reconciliation is a tedious task but necessary to pick up and avoid mistakes. Reconciling your books also helps you identify how much money you have on hand at any given time, and it also allows you to discover bank errors before they become major problems.
6. Insignificant Communication With Your Bookkeeper, Or Not Having a Bookkeeper If You Are Struggling
It is really important to have good communication with your bookkeeper and to brief them on your activities and concerns. Stay in regular contact with your bookkeeper, to keep them informed of all your purchases and make sure they are on the same page and aligned with your objectives.
The business numbers and their management needs to be done in a timely fashion so that it is all current and up to date. A little time, expertise, and rigor every month saves everyone from falling behind and mistakes happening. It also manages the energy flow and keeps the business moving forward.
Avoid the stress and mistakes and let the experts like Focus Bookkeeping manage the numbers and get it right every time.
7. Not Paying Attention to Your Obligations as an Employee
When employing staff a business must keep records of the payroll, and understand their obligations to pay staff superannuation, deductions, and bonus if applicable, tax, and report STP correctly. On top of those obligations, you need to have in place insurance and work compensation.
Nowadays businesses often have a combination of employees with different categories (full-time, part-time, casual), as well as independent contractors, consultants, and freelancers.
Please take time to ensure everyone is properly classified to avoid misfiling and overpayment of taxes. Having an ABN does not necessarily make someone a contractor and you may still be liable for paying their PAYG and Superannuation.
A professional certified bookkeeper can keep your business on track setting up the right payroll system for your business and give you peace of mind that all people who work for you are being paid correctly, on time and your business is compliant with your statutory obligations.
WHAT ARE MY TWO OPTIONS FROM HERE?
After having a quick glimpse through a few of the most common bookkeeping mistakes, there really are only two options. Firstly if you are doing yourself then please invest in keeping yourself trained and allocate the time to do manage your business books correctly.
Or you could get in touch with us to talk about hiring a registered Bookkeeper/ BAS agent and have an obligation free chat with Fabiana today. Save time and money using an expert and focus on what you do best which is growing your leads and business into the future.
Read more about Fabiana and Focus Bookkeeping.