Towards the end of each financial year, many business owners review their expenses and pinpoint which ones can be prepaid before June 30 in order to obtain a substantial tax deduction. Typically, expenses such as office rent and insurance are paid 12 months in advance and are then classified as prepayments. This is particularly useful if the profit margin is high and the business owner wishes to reduce tax payable (and who doesn’t!). But how do you enter these transactions into your accounts and how is GST affected? Let’s review this now.
After the coldest winter in 26 years in Australia, I for one am very happy that today is the first day of Spring! Spring time, along with its welcome warmer temperatures and longer days, is renowned as being the time for cleaning, hence the phrase “spring cleaning”. As I no longer need to worry about house cleaning since employing a cleaner earlier this year, the only “cleaning” I need to concern myself with these days is within my business itself. So how on earth is a bookkeeping business cleaned? What does this actually mean and how is it done? Read on to find out more!
In last week’s blog, I looked at a different kind of business goal business owners could (and should) adopt this new financial year: putting themselves first and their business second i.e. looking after number one. By making this your main goal, I believe you will find personal “happyness” (spelling intended) and your business will be all the better for it. It’s a win-win! This week I’ll explore some of the things business owners can do to get them started in their quest to put themselves first.
As luck would have it, my weekly blog due date falls on the first day of the new financial year! I sat and wondered what I should write about being such a momentous day for tax professionals and business owners alike. I thought I should write about tax tips or business goal setting etc. for the new financial year but then thought, “Nah, that’s been done to death!” Thinking a little harder, I decided to write about something a little left of centre. My topic for this blog is about business owners setting a different type of goal for the 2016 financial year:
“Find happiness: put YOU first and your business second”.
So you have an awesome bookkeeper who keeps your business accounts super organised. S/he keeps on top of slow paying customers, reminds you to pay your bills, provides some pretty slick-looking reports and has those boring conversations with your accountant that you always avoid. Sounds like you’re onto a winner – good for you! Now you’ve decided to go one step further and you’re going to ask your bookkeeper to prepare and lodge your BAS on your behalf. Okay, well before you do, you’d better ask him/her these 3 key questions:
I did something different this week – I employed a house cleaner. Do I really need a house cleaner? Probably not. Can’t I clean my own house? Yes, you bet I can – after 30 years of marriage I’ve had loads of practice! So why a cleaner now? Basically, I’ve decided that my time, especially in terms of my business, is precious and I need to spend it wisely. I’ve finally realised spending 3-4 hours per week cleaning, washing etc, is NOT a wise use of my time. I should be using that time to work in/on my business or just simply relaxing. It’s time to stop trying to do everything myself and give myself a break.
So this move to outsource my cleaning got me thinking…….
There are probably hundreds of business owners out there like me trying to do it all – the actual work, the marketing, customer relations, administration AND…… the bookkeeping. While outsourcing is nothing new, it is certainly hard for some to do and when it comes to bookkeeping, some find it very difficult to let go! But I promise you, by outsourcing your bookkeeping, your business will improve and you will certainly be happier! In my honest opinion, you should engage a bookkeeper for the same reasons I got a cleaner. Here are those reasons:
Time
Like me and my house cleaning, you’ve looked after the bookkeeping for your business for ages and are doing a pretty good job, so why outsource it? Simple! You’ll get more time to get your work done or to work ON your business. You’ll also get more time for YOU. Instead of working after hours and on weekends on your bookkeeping, you can do something else, something you like doing. It’ll be good for the soul, your sanity and your business!
Skills
I’m pretty good at cleaning. I’m careful and do a thorough job. I’m good at it but are my cleaning skills better than those of a professional cleaner? Probably not. My cleaner uses better cleaning agents, better tools and seems to get tasks done much faster (and better) than I can – obviously she knows a few tricks that I don’t know! If you engage a bookkeeper, you’ll find that story will be exactly the same. Even though you’re pretty good at your own bookkeeping, your bookkeeper will always do a better job because s/he has been trained and educated in the field. Like my cleaner, your bookkeeper will do the work faster and better than you’ll ever be able to do it.
Jobs
By outsourcing your bookkeeping (or in my case, the cleaning), you’ll be giving someone a job or helping someone else’s business grow. This can only be good for your local economy. It’s a win-win. You get back some much-needed time and your bookkeeper gets a job or a new client – yay!
Networking
Getting a bookkeeper could be a great networking opportunity – no, really! A contract bookkeeper has many clients and some of those clients might just need the type of service you are providing. Your bookkeeper might even need your services – who knows! The point is, we are more likely to buy from those we know and trust. Your bookkeeper could be your greatest advocate (I’m hoping my cleaner will be one of mine!).
There’s an old saying, “just because you can, doesn’t mean you should”. Sure, I could have battled on, working full time and then spending the weekend cleaning, washing, ironing etc – I’m certainly more than capable! The problem with that scenario is that there is a distinct lack of FUN involved! I’m sure if I continued in this vein, I would have ended up burning out, not enjoying my work, my family or my life! Here’s my tip for all you hard-working solopreneurs – in the words of Molly Meldrum, “do yourself a favour” and stop trying to do everything yourself! Outsource what you don’t need to do (even if you can do it) and focus on doing what you’re best at – the actual work! This could be the bookkeeping or perhaps another aspect of your business; whatever it is, delegate it and get your life back!
It’s pretty obvious that I’m a fan of blogging. I’ve been writing this one for some 5 years now and really enjoy doing so. The other day I got to thinking about whether other bookkeepers blogged at all and thought that it would be great to get a list together of some of these blogs to share. I asked some fellow bookies on FaceBook and also did my own research via Mr Google. After searching some 30 pages on Google I found a few gold nuggets, 24 of them to be exact! Here is my list of 24 awesome Australian bookkeeping blogs:
The employers’ world is complex and difficult to navigate, to say the least. Dealing with some employees can be hard enough but add to the mix tax and superannuation compliance tasks, and the job can become very tricky indeed! Most employers would be across PAYG withholding tax, payment summaries and super requirements but there is also one other tax that is perhaps lesser known – payroll tax. Not every employer needs to pay this tax but every employer should know what it is and when it should be paid.
I’m starting something new in my office. It’s going to be called “Training Tuesdays”. On Training Tuesdays I’m going to dedicate 1 hour to my CPE (continuing professional education) activities. Why am I doing this? Read on to find out why! …
Unless you are a bookkeeper or other tax professional, you probably won’t know what a suspense account is or how to use it. It certainly isn’t a group of bookkeepers waiting with bated breathe for something but you could be forgiven for thinking it was! A suspense account is an account to which transactions that are unclear or require further discussion are allocated i.e. they are kept in suspense. The suspense account is used frequently by tax professionals but maybe something quite foreign to business owners. If it is used properly, the suspense account can be very helpful for both parties in terms of bookkeeping.
For business owners who do their own data entry:
Never ever guess where and/or how transactions should be posted in the accounts. This will result in your tax professional firstly having to find those erroneous transactions and then secondly having to reallocate them to their correct accounts. This takes time and costs you money! Instead, set up an “other expense” account and call it “Suspense” then allocate any transactions that you are unclear about to this account. Next, advise your tax professional about what you have done and why. He/she will allocate these transactions to their correct accounts for you. This helps to avoid mistakes and double-handling of transactions.
For tax professionals:
As you process a client’s accounts you are likely to come across transactions that are not clear to you. Never guess or assume that you know what a transaction is, instead just post it to the suspense account. Once you have reconciled all of the other transactions, you will be left with a list of “query” transactions in the suspense account. Send this list to your client and ask for further information about the transactions and if necessary, copies of the invoices or receipts to assist you. When you have all of the required information, you will be able to properly allocate the “query” transactions as required. By putting these transactions in the suspense account, you will still be able to reconcile the bank account to ensure the closing balance is correct.
Some tax professionals don’t like suspense accounts, preferring instead to leave query transactions out until they can discuss them with the client. I prefer to use a suspense account because doing so allows me to reconcile the bank account which may uncover other issues such as missing transactions or double-entered transactions etc. I also like the idea of putting all “query” transactions into one account so that a report can be raised from that account and given to the client to review – it’s nice and tidy :-). Business owners doing their own data entry can also benefit greatly from using a suspense account. Instead of wasting valuable time trying to work out what to do with a troubling transaction, they can simply allocate it to suspense and ask their bookkeeper or tax agent to deal with it. A suspense account, in my opinion, is a very handy little tool!
