Wendy McClune of Bronte, New South Wales asks:
I established my business 2
years ago. Money was scarce so I cut expenses any way I could. One area
was bookkeeping which I do myself. My problem is that I spend too much
time at it. One night, I was up to 11pm calculating staff PAYG
withholding amounts. Should I persist or get a bookkeeper?
Kenelm Tonkin, Chairman, Tonkin Corporation answers.
Proprietors should never do this work themselves even if a qualified
accountant. If an entrepreneur has insufficient cash for bookkeeping, he
must really rethink his venture’s feasibility.
Here are four reasons for this unapologetic view.
First, business owners need independent eyes and professionals
provide advice based on appropriate accounting standards plus revenue
and corporate law. Proprietors have an in-built bias, which under
pressure can lead to poor decisions and inaccurate record keeping.
Second, bookkeepers and accountants are more adept at running a company’s books. So, business owners gain information faster.
Third, professionals are technically better than the average
entrepreneur. This shouldn’t be a surprise. Accounting is a profession,
Fourth, delegating the accounting function frees the entrepreneur for
higher-yielding work such as business development and deal-making. This
makes the company stronger because the founder is doing what he’s good
at rather than fumbling with bank reconciliations and journal entries.
Common errors Australian proprietors make when handling their own
accounting include: mixing personal and business expenses; not making
provision for the amount and timings of tax liabilities; using unearned
revenue to pay expenses; being blindsided when the bank balance hits $0;
claiming non-deductible expenditure; failing to depreciate assets; not
expensing items at market rates; failing to expense items and neglecting
to draw a salary. Other frequent mistakes coalesce around motor vehicle
expenses, FBT, payroll tax, drawing blindly out of company funds
without considering Division 7A and a host of miscellany such as PAYG,
superannuation guarantee, land tax and stamp duty. By far the biggest
error is insolvent trading.
No street-smart entrepreneur runs his own accounting function. Smart
proprietors understand that accurate and timely accounting information
prevents stress, whether caused by Australian Taxation Office letters of
demand or business collapse.