With the end of financial year approaching, you will want to ensure that the tax-return process for your business goes as smoothly as possible.
It’s a time that many business owners come to dread. However, with some changes to the way you approach tax time – it does not have to be the nightmare you imagined. Here are some of the most common mistakes to avoid.
1. Not keeping accounts up to date
The end of financial year can become much harder than necessary if you don’t keep your accounts up to date.
First of all, it is time consuming to go through and check a backlog of accounts. Furthermore, it can also have a negative effect on the clarity and consistency of the information provided to support your financial statements.
In addition, failure to monitor incoming and outgoing cash flow within a certain period can leave you without vital funds needed for your business obligations.
Utilisation of accounting software assists businesses in keeping records and accounts organised and up to date. If you are not using them already, they are something you should consider.
2. Writing off bad debt prematurely
Quite often business owners will choose to write off their bad debt towards the end of the financial year. This is sometimes done with the aim of recovering the goods and services tax (GST) and to reduce income tax for that year.
While this may be the right move once a debt becomes impossible to collect – in many cases – businesses draw the line too early on bad debts. There could still be ways to collect that money.
One possibility is to try a collection agency. It may seem like the customer has disappeared, but a good collection company can often find them. Use of a private investigator is another option.
If you are to employ a collection agency – the quicker you do it, the better.
Rates increase for older debts as it is usually harder to locate the client or to retrieve the debt, the longer you wait.
3. Not keeping regular contact with your bookkeeper or accountant
For business owners who are not experienced in accounting, employing a bookkeeper to keep their financial records and accounts in check, is especially important. Check out our article Do I need a bookkeeper?
It could be hiring one internally, however, if you own a small business it is probably a better idea to outsource to a bookkeeping company. The overall cost will be lower.
A bookkeeper ensures that you are kept up to date on crucial tax or accounting changes. They also provide you with a deeper insight into your current financial position.
A common mistake that business owners make is they only contact the bookkeeper at the end of financial year – once their records are already a mess. To save yourself the time and struggle, it is better to employ a bookkeeper or accountant throughout the year.
Understanding your current financial position means you can more accurately plan ahead for financial growth.
4. Inadequate record keeping
If you’re going to pay money for bookkeeping services, it’s essential that you find someone with the required experience to handle your needs.
Don’t outsource you bookkeeping to the cheapest service you can find and then be surprised when the records lack detail or supporting information. This can create huge problems for business owners.
If you overestimate your profit for a certain period, you will be needlessly paying more tax. At the same time, underestimating your profits can lead to an audit and potential fines.
Small errors will snowball over time if they are not stopped in their tracks. Reconciliation is a great example. If you don’t regularly reconcile your records with your bank statements, your finances will likely suffer significant damage in the long term.
Make sure to take action early so that you save yourself an unnecessary headache at the end of financial year.
5. Lack of training on accounting software functionality
Accounting software has made the life of both clients and their bookkeepers easier than ever. This software automatically updates a businesses financial records as they occur throughout the year.
Programs such as Xero can track things such as payroll, key expenditure, inventory, invoices, or even PAYG and GST payments.
Utilising these programs means businesses spend a lot less time and money on handling their financial records. Furthermore, their accountants will have more time to focus their roles as business advisors too.
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