Cashflow, Accounting, Tax

Q&A: Keeping the books

Question
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?

Answer
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, after all.

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.

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