How to set yourself up for bookkeeping in your small business

Ask any business owner what their least enjoyable task is, and they’ll likely say …“managing business finances”.

We get it. For many business owners, the task of keeping up to date and on track with finances is a bit of a bore and just means less time creating and doing what you love.

Managing your business finances is an important task though, as it helps keep your business running smoothly and saves you money in the long run.

You also need to be well across your accounts if you want to apply for any COVID financial relief packages, as you will need to show your income. Many COVID relief packages also require you to be GST registered.

But don’t worry if you find yourself with unorganised accounts or messy cashflow, because we have a few simple tips to help make it easier.

A small business owner managing day to day operations

Managing business finances

Most business owners are managing several departments: Marketing, sales, legal, HR, customer service, etc. It’s no wonder that the financial side of running a business can often be left a little lacking.

Throw in other factors such as multiple income streams and it can be even harder to keep on top of where the dollars are coming from and going to.

Whether your side hustle has grown suddenly or your established business has never had good record keeping, it’s never too late to start to get financially organised. I promise: As experienced bookkeepers, we don’t judge!

6 easy bookkeeping tips for entrepreneurs and small business owners

If the words ‘budget’ and ‘cash forecast’ make you shudder, that’s okay. You're good at what you do, whether it’s running a hair salon, making jewellery, creating art or music, running a legal firm, producing a line of handbags or any other business. You're not expected to be a whizz at spreadsheets too!

That’s where our team at Counting Clouds can help, since we're experienced in helping small business owners run and grow their businesses and make sense of their business finances.

Whatever your business type, these 6 tips will help your business to thrive.

1. Have separate bank accounts

One of the simplest ways to get financially organised is to ensure your business has a separate bank account to your own personal accounts. Whether your business is currently a side hustle or a fully-fledged business turning over six figures, you need to ensure you set up a separate account. This can be with the same bank or a different bank - It’s up to you.

Having a separate account will make it so much easier to reconcile incomings and outgoings, plus you will be able to see how much money you actually have in your business.

2. Gather and file receipts

If your receipt keeping looks like the pile of paper on the living room floor on Christmas day, then it’s time to find a better system!

Why is it so important to keep receipts? As well as making your life easier, it helps you to manage your cash flow and meet your tax obligations.

By law you must:

  • Explain all transactions
  • Keep records in writing (electronic or paper)
  • Keep records in English or in a form that can be easily converted
  • Keep records for five years (and some records may need to be kept longer)

You can keep many business transactions in electronic form, but paper records are better than nothing.

We use technology for submission of source documentation. Our preferred app is called DEXT, which when installed on your phone can take photos of your receipts and then talk to your Xero, keeping everything seamless and paperless. You also have the option of emailing bills and invoices to the software, meaning there is no need to keep your filing anywhere else!

3. Know how much income is due

A basic principle of bookkeeping is that you should always know how much is coming IN to your business. How much are you billing? How much cash is coming in from customers or clients who are buying your products or services? If customers don't pay at the time of purchase, some of your cash flow is coming from collections of accounts receivable.

And remember, late payments can affect your cash flow, so it’s worth having a good accounting system so that you can encourage early payments or chase up unpaid accounts.

4. Get a grasp of your expenses

A good way to get a grasp of your expenses is to list all your outgoings and liabilities, such as loans, rent, IT management, payroll, marketing, investments and tax bills.

If you have a good system for expenses, you won’t have any nasty, shock bills that you can’t pay.

5. Set up a good payroll system

If you have staff, failing to implement a proper payroll system can spell disaster. A good payroll system will allow you to easily keep track of hours worked, employee details, tax and super obligations, plus annual or sick leave costs.

In 2019, the ATO added another layer of compliance for employers with the introduction of Single Touch Payroll. This means that if you have staff, you must have an electronic payroll system that is STP compliant and has the capacity to transfer payroll data at each payroll event. All of Xero’s payroll subscription levels have this capacity.

6. Seek expert financial advice

If you're doing your books yourself, be prepared to set aside time regularly to do them, and don’t put the task off. It’s too important to the future of your business.

Setting up a Xero file is only one step in the process. Xero is the tool; you also need someone capable of USING it. It’s always best to start right, get someone to help you set it up, and have someone review the system regularly.

If you’d rather get some help to keep your books in good shape, then it’s a good idea to use a bookkeeper or accountant. It’s worthwhile differentiating here between the two:

Accountants usually charge a much higher rate than bookkeepers, so there’s money to be saved in using a bookkeeper rather than an accountant for the following:

  • Invoicing
  • Paying bills and keeping track of them
  • Payroll technicalities and processing
  • Preparing financial statements
  • BAS, IAS, PAYG, and Annual GST lodgements (if they're a registered BAS agent)

With your books in a good state, you can then hand them over to your accountant at tax time. They can use their eagle eye to discover deductions you might not have known were available.

Benefits of a good accounting system

The benefits of having a good accounting system extend further than just less stress for you. There are tangible business benefits too:

  • You can see your predicted profits
  • You can avoid a surprise bills
  • You can minimise accountancy fees
  • You can monitor your cash flow so that you can be ready for growth
  • You can apply for COVID business support grants and other packages

Ready to set yourself up for bookkeeping? Talk to the team at Counting Clouds and find out how we can help you. We'd love to hear from you so please email us on [email protected] or join our mailing list to receive up-to-date financial news and tips.