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Bookkeeping for small business: What business owners need to know


Bookkeeping has historically been one of those tasks that you would hand over to a professional, but nowadays, more and more business owners are doing their own bookkeeping for small business or wanting to better understand what their bookkeeper is doing. This is what you need to know.

While it is wise to be involved in every aspect of your business – especially when it comes to your finances – it can be easy to make costly mistakes if you don’t have sufficient understanding of bookkeeping for small business.

Unfortunately, due to some misconceptions surrounding bookkeeping, many business owners are making unavoidable business mistakes.

While some of the points we are going to discuss hold merit, there are other factors to consider, such as ensuring compliance standards are met.

Misconception #1: Bookkeeping for small business is just as simple as recording income and expenses

This may be a true statement, but only partially.

There are several steps that need to be taken before you input this information. It’s vital to have your accounting software set up correctly before you even start.

Furthermore, establishing appropriate policies and procedures to ensure accurate recording of the transactions is essential. These may include asset purchase treatment, allocating personal expenses from the business accounts, cash sales and purchases, handling petty cash, owner contributions, and purchases made with private funds — to name just a few.

Misconception #2: Accounting software sales pitches tell the whole story

When purchasing accounting software, it is important to be particularly discerning about the features they promise. While it may seem obvious, it can be easy to fall for the promise of a simple plug- and- play set up for bookkeeping for small business.

Accounting software sales pitches will often draw you in by telling you that artificial intelligence (AI) will automatically allocate transactions once you’ve set up bank feeds and rules.

AI has undoubtedly gone a long way towards accounting software reducing data entry, and the time it takes to process weekly or monthly accounts. Linking bank feeds to the accounting software and setting up transaction rules are a massive time saver.

However, the software and transaction rules must be set up correctly to work as needed. Bank reconciliations are another crucial aspect of bookkeeping that will ensure all the business transactions match the bank statements. Payroll account reconciliations also need to be implemented, as they are also essential to monitor liabilities.

Misconception #3: Running payroll is a simple process

This is one of the biggest misconceptions of all.

Running payroll requires you to also take into account and deduct PAYG, and pay salaries and superannuation.

When recruiting, business owners need to be mindful of their recruiting process, including ensuring staff are engaged under the National Employment Standards, at a minimum, and per relevant industry awards.

You also need to consider which employee records will have to be obtained and kept, how much tax to deduct, and which pay categories require tax to be considered.

Superannuation is another compliance that many business owners get confused about or disregard entirely. The percentage that goes towards superannuation needs to be calculated accurately. Specific pay categories aren’t eligible for superannuation, e.g. overtime earnings.

Misconception #4: Accounting software will provide all the correct information automatically.

Accounting software will often generate these reports, but as mentioned above, this is only possible with the proper set up of the software and the knowledge of the person using it.

Without proper training, the person using the software for bookkeeping for small business can make costly mistakes, potentially resulting in heavy fines, especially if those mistakes involve sales tax.

Misconception #5: It’s cheaper to do bookkeeping for small business yourself without training

Many business owners — especially start-up businesses and sole traders — feel the need to do their bookkeeping for small business themselves in a bid to save some hard-earned cash.

However, you should consider that if the above processes are not compliant, it can end up costing far more to have a professional fix the errors in the long run. You may end up with costly penalties, or other fees or interest.

In conclusion, training by a certified and experienced bookkeeper and tax agent can help business owners and/or their employees ensure proper processes and be compliant. In addition to compliance, the bookkeeper can explain financial reports, including the balance sheet, profit and loss, accounts receivables, accounts payables, liabilities, record keeping, budgeting, and cash flow monitoring.

Basic bookkeeping for small business training is an excellent investment for small businesses undertaking their own financial processes. It will save you money in the long run, ensure compliance and give you peace of mind.

I would like to see the government enforce a two-hour workshop for businesses or individuals applying for a business registration to highlight some of the compliances required. Without the correct compliance knowledge, business owners could find their bookkeeping for small business tied in multiple knots that take a great deal of effort to untangle.

About Katia Chehade

Katia Chehade is a Registered BAS Agent and bookkeeper with over 20 years hands on industry experience and is passionate about helping business owners with their bookkeeping and accounting software. Preparation of high quality reports and accounts is her specialty.

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