Common Bookkeeping Mistakes that Business Owners Must Avoid

Wednesday, 21 Apr 2021

Bookkeeping is often perceived as one of the strenuous tasks that consume all the time of entrepreneurs. Managing books, recording transactions, preparing payroll, filing taxes, invoicing, etc., can take a toll on the already loaded business owner. Sill most small businesses avoid hiring a professional bookkeeper Melbourne to reduce costs. However, they end up in a messy situation where they lose more than they can save.

Without the support of an experienced and qualified bookkeeper, entrepreneurs make errors that can cost their businesses dearly. The reason is that they are unable to devote the time and attention needed for this chore. If you have been doing your books and want to avoid the common pitfall, you must be aware of them. So here is a list of standard bookkeeping mistakes that should be avoided by business owners.  

 1. Effective Time Management

Whether you are a small entity with only a handful of employees or a growing business with considerable staff, you need to have enough time for bookkeeping. It cannot be neglected or postponed as it needs to be done every day religiously without missing out any of the details. If you fail to keep the books and records updated, it will reflect on the performance of your business. You will have no idea about the amount spent and the income generated in a period and it will affect your financial decisions.   

Conversely, if you spend too much time on the task to make sure that the reports are accurate and the books are organised, you can miss out on a lot of other significant work. Since time is of the essence for an entrepreneur in Melbourne, they cannot afford to waste it. Thus, accounting should be managed by an expert or outsourced to a bookkeeping company.

2. Inadequate Record keeping

Appropriate records are the most vital documents for a business. With inaccurate records, the business owner can spend more than required and it will imbalance the cash flow. Improper recordkeeping can lead to legal ramifications and even bankruptcy that can roll down the shutters for the business. It does not allow you to claim expenses that are not recorded and can lead to penalties from the tax office in Melbourne if you are unable to justify the claim.

The tax season can leave you scrambling for the lost receipts and sorting through tons of paperwork. It can make you stressed and financially unstable. Thus, it is recommended to switch to cloud-based accounting software that automates most of the processes.    

3. No Follow Ups for Payment

Accounts receivable can get sidelined by entrepreneurs in their bid to track the expenses. However, if the incoming is not arriving in your business account on time, it can lead to a cash deficit. Thus, staying on top of receivables is necessary. You need to invoice immediately after the good and services are delivered to the customers in Melbourne. Make sure to follow up so that they make the payment without delaying the process.

The bookkeeper takes charge of the following up task and explaining the terms of payment to the clients. They ensure to avoid late payments by maintaining rapport with the customers and reminding them of the ways of an easy payment or giving them a discount for early payment.      

4. No Tax Planning

Taxation laws in Melbourne are vast and varied, and the business owners need to know about the taxes to plan for them. From income tax and fringe benefits tax to goods and services tax, they need to determine all the liabilities and file them on time along with the required reports. Therefore, tax planning is considered the most vital part of a bookkeeper’s job profile. It aids in reducing the liabilities for the financial year and claiming deductions to reduce the taxable income.

Bookkeepers support in determining the assets that are exempted from capital gains tax. Thus, they help in reducing the tax bill and avoiding any penalties. They submit all the reports on time and make sure all the information is sent to the tax office in Melbourne.

 5. Failing to Reconcile Bank Account

The bookkeeper regularly reconciles the bank statement with the business records for a specific period to find out inaccuracies. It helps them to determine that all the money remains in the system and nothing has been withdrawn by fraudsters or has gone missing. The bank statement should match with the books so that you do not go into losses by spending more than required.

With accurate books, you can manage the cash flow in a better and organised manner. It helps in detecting frauds or even an error made by the bank in Melbourne. It helps in tracking receivables as well.

6. Using Personal Funds for Business

Small business owners in Melbourne can make the mistake of using the business credit card for making personal payments or use their personal credit card for making business payments. However, mixing these two can make bookkeeping challenging. It can create problems at the time of auditing too.

Therefore, it is obligatory for the business owner to use a dedicated business credit card. If you happen to make a transaction by mistake, you must reimburse it immediately. However, it is better to maintain a proper distinction between personal and business finances.

7. Not Preparing Project Budget

Several businesses in Melbourne begin new projects without determining the budget. With no projections, they usually overshoot their limit. It makes them go overboard and lose money in the process. Thus, the investment is higher than the return and it brings no profits into the organisation.  

Bookkeepers make financial projections for every project and make sure that the business is not going into losses or overspending. They utilise cost-cutting measures and keep a check on expenses to ensure that the cash flow is not impacted. Bookkeepers are always aware of the available capital and the amount that can be spent to maintain the bottom line. Thus, they ensure that the entity is never short of capital.

Endnote

Bookkeeping mistakes can have a detrimental impact on the success of the business. Thus, it is wiser to hire a professional bookkeeper in Melbourne to take care of the books and all the other accounts related tasks.               

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