It’s coming up to tax time, and chances are as a small-business owner you fall into one of two camps. Either you’re cruising towards EOFY with your financial affairs and taxes in order, or you’re scrambling to track expenses and deductions and remember where you put your receipts.
With increasing financial challenges this year for Australian SMEs such as inflation, rising wages and high petrol prices, tax obligations may not have been front of mind for many small-business owners.
Chances are your resources, budget and manpower are already stretched when it comes to maintaining your accounts, however, it’s important to be on the front foot with accounting as it can be one of the most critical aspects of business success.
Here’s how you can avoid making simple accounting mistakes –
1. Track your business transactions
Keep a record of all your business transactions. Have digitised copies and paper backups for future reference and to maintain the health of your business. Don’t forget records of employee compensation, utility expenses and cash receipts. If you’re audited by the tax office you will be required to show records of all your business expenses, even the small ones. Consider implementing financial tools that can help you automatically monitor your business transactions and create a backup in case of an emergency.
2. Communicate effectively
Your bookkeeper should have a good understanding of your company’s financial performance at any particular time. Ensure that you clearly understand and communicate regarding your financial records, reports and any other vital statements relating to your business. They need to know what’s going on – be that small or large transactions, or new finance arrangements or structures.
3. Keep up with paperwork
Make sure you keep your books up to date. Falling behind on paperwork is one of the most common mistakes we see small-business owners make and if you fall behind on billing customers you may find yourself with a debt that never gets paid. There’s also the risk of other payments being late that you may be liable for fines and penalties from the ATO. With the rise of online accounting software, Xero, MYOB etc, staying on top of your accounting is simple.
4. Budget for every project
For every new project you start with your business make sure you have a clear budget set out from the beginning. Those that don’t do this often find they’re setting themselves up for financial failure. You don’t want a significant portion of your cash flow utilised unless you’re getting a good return on your investment. Look back on past projects to determine an accurate budget based on what you’ve spent before.
5. Don’t mix personal and business accounts
Mixing business and personal accounts makes it harder to track business expenses and you might miss an expense that could have been a tax deduction. Having a separate business account also gives lenders an understanding of your finances if you’re applying for a loan or an alternate funding options like invoice financing. You want to make sure you maximise your credit score to obtain the best financial solution for your business.
6. Don’t be afraid to delegate
Sometimes small-business owners are unwilling to outsource essential tasks to save money. This is understandable however eventually you will need to outsource sufficiently in order to scale your business to expand. Focus on what you’re good at doing and pay specialists to handle necessities such as your accounting. Having expert advice will help you to maximise your income and any financial or strategic opportunities whilst also minimising your taxes.
