With the evolution of cloud accounting software (think MYOB, Xero, Quickbooks Online), business owners tend to sign up to a software subscription under the impression that the end numbers the system spits out are 100 per cent accurate and reliable. Think again.
The old saying of “rubbish in rubbish out” has never been more important than when it comes to business owners taking on the role of bookkeeper/accountant in their own business.
Here we shed some light on some of the biggest financial mistakes we have seen:
1. Plucking pricing out of mid-air. Pricing is such a pivotal part of the success or failure of a business. We had a client come to us wanting some help with her cash flow forecasting. However, after doing the sums, the client would need to sell 200 units a month just to break even. And in 8 months no units had been sold. Sadly, the reality was the business was not a viable idea as the pricing model was just all wrong. Doing some “what if” scenarios before you invest thousands of dollars on stock is vital.
2. Accounting software is expensive. Accounting software that covers payroll, inventory, budgeting, sales, expenses and reporting starts at around $25 a month and goes up to around $70 a month. We had a client sign up to accounting software, and in the first week, she realized she was paying for a gym membership for the past 18 months despite not setting foot inside the gym. The accounting software was $50 a month and her gym membership was $88 a month. It didn’t take her long to see the value.
3. My uncle has taken care of it for me. We love that family want to help, but if they don’t have a financial background be cautious. We have recently had a client pay employees in cash causing issues with end of year payment summaries, superannuation was not being paid for 2 years, the business was not registered for Workcover and the list goes on. The implications of this advice from an “Uncle” has cost the business owner thousands of dollars in penalties.
4. Detail is just not important, so I will do it myself. Whilst yes, you will save on costs, often an accountant is far more qualified to get the level of detail you need. We had one client wanting a bank loan for the fit-out of new premises. They had no financial security. We prepared several rounds of calculations, assumptions and financial reports until we had a complete workbook she could provide to the bank. The bank approved her $80k small business loan within 48 hours.
5. A shoebox is not a storage system. ATO regulations state you need to keep proof of purchase for a minimum period depending on your structure. We had a client receive an audit for payroll tax purposes dating back three years. They were required to provide source documents including all contractor invoices. Keeping things in a shoebox means any kind of audit is stressful and time-consuming. Digital storage of some kind is the way forward.
Financial mistakes cost more than just money. They can cost you in time, stress, family arguments, brand reputation and mental health issues. But help is out there. A review, training session or tidy up of your numbers could set you on the right path, and before you know it, those numbers will start to make sense.
Stacey Price, Accountant and BAS Agent, Healthy Business Finances