Top Ten D.I.Y Bookkeeping Mistakes Made By Small Business Owners
Outstanding debtor oversights, tax deduction ‘short-changing’ and use of over-complicated software are among the biggest mistakes made by Australian business owners undertaking D.I.Y bookkeeping. Wayne Burgan from Cashflow Manager explains…
Heavy workloads and inadequate or inappropriate procedures and systems can force business owners into costly mistakes. Small business owners are often juggling a variety of tasks, from managing staff and business development through to hands on work. Bookkeeping is often the task left in the To Do basket until it’s too late or undertaken at the last minute, and this increases the likelihood of mistakes. Mistakes or oversights can cost small business owners thousands of dollars, money they would rather see on their bottom line. Mistakes like these can also expose owners to substantial fines if uncovered in a Tax Office audit. Cashflow Manager recently released its list of Top 10 Mistakes in D.I.Y Bookkeeping for Australian Small Businesses and high on the list were deduction claim ‘short-changing’, incorrect GST-related claims and software usage. Small business owners often use accounting software that is too complicated for their needs and their level of accounting expertise. For example, some business owners who don’t understand double entry accounting are effectively left with a virtual ‘shoebox’ packed with information that will either expose them to risk in a tax audit, or require their accountant to spend extra time sorting it out – and accountants charge by the hour.
Australian small business owners also ‘short-change’ themselves quite often of tax deductions that they could otherwise rightfully claim. In most cases this is a simple oversight such as not keeping accurate records of cash expenditure. Business owners can also fall into the trap of claiming GST deductions when they don’t have valid tax invoices, or the goods and services relating to a full claim have been partially used for private purposes, or the supplier was not registered for GST. Another common mistake was failing to keep track of, and follow up on, overdue accounts. Many business owners are so busy doing the work of the business that they take weeks or sometimes even months before getting their invoices out to their customers, which then sends an implied message to their customers letting them know they have a long time to pay. In addition, some owners don’t have the appropriate systems in place to keep track of debtors and follow through on payments due. Allowing outstanding debtors to fall through the cracks can put enormous strain on your business cashflow.
Mistakes were also made by business owners in paying employee super contributions. Under the Superannuation Guarantee Legislation, employers are required to pay 9% of an employee’s ordinary time earnings as superannuation – but many employers are unclear exactly what constitutes ordinary time earnings. As a result, employers tend to err on the side of safety when it comes to working out compulsory superannuation contributions and may effectively over-pay employees. Business owners also need to be vigilant and ensure back-up copies and systems are in place to safeguard their financial files in case of a technical breakdown. This should be standard procedure but it is still often overlooked.
Top 10 Mistakes in D.I.Y Bookkeeping
1.Using computer software too complicated for your level of accounting expertise
2.Short-changing yourself by not claiming valid tax deductions
3.Claiming GST credits without valid tax invoices
4.Claiming GST credits for full the amount of purchase when goods are used partially for private purposes
5.Claiming GST credits where the supplier is not registered for GST
6.Not invoicing quickly and letting overdue debtors fall through the cracks
7.Paying incorrect employee super contributions
8.Missing deadlines for PAYG or BAS
9.Failing to check records with the bank to ensure accuracy
10.Failing to keep back-up records
CPA Wayne Burgan developed ‘the simplest bookkeeping program on the planet’ to help his own clients, and Cashflow Manager has now sold over 100,000 copies. For a free demo, phone Cashflow Manager on 1300 88 78 68.