These errors make it almost impossible for principals to gain any meaningful insight to the real financial performance of their business.
Here are the five most common problems I encounter in order of frequency.
1. Being disorganised
Some offices have no system or structure in place to ensure all their liabilities are paid or up to date. That can include no filing and, in some cases, no paper trail of invoices or receipts! Remember, you are required to keep records for seven years should the ATO want to come for a visit.
2. Only doing the bare minimum
Another mistake is when offices do nothing more than ensuring staff and suppliers are paid. This style of bookkeeping gives almost no insights into the financials of a business and generally results in shock when it comes to liabilities, be they tax, BAS or superannuation. This leads to point three…
3. Seeing a P&L only once a year
This happens because only the bare minimum has been done and the shoebox of paperwork handed to the accountant. After compiling your tax and business financials, the accountant explains the P&L and balance sheet, which is when the shock occurs. You should place the expectation on your bookkeeper to deliver this monthly – and if they can’t, why?
4. Unrealistic timeframes
This is a classic. Some business owners demand to have the books completed in a timeframe that’s not realistic. This happens for one of two reasons: either they have no understanding of what the bookkeeper does and how long it really takes, or it’s time pressure to save money. Too often the bookkeeping is only seen as a cost centre, with little value placed on what comes out.
5. Manual processing
Accounting software allows an efficiency gain by processing things once, like payroll or supplier payments. These can then be uploaded to the internet bank as a single file or what’s known as an ABA file. The main thing to remember is that the business owner or someone authorised by them should sign off the payments. All too often, these payment runs are entered twice – once into the accounting software and again into the internet banking – making for an inefficient use of the bookkeeper’s time.
The lesson is to get organised and systematic. A calendar of what’s being done and when will keep you informed and in a much better position to make business decisions based on financial facts, not a best guess. Knowing how many listings or new property managements you have is important – but knowing whether you’re making a profit or loss is vital.