Tips and tricks from your local business and wealth advisors, Collins & Co of Footscray
Five ways to solve 80% of your accounting problems
Accounting problems can have serious consequences for your business and are worth avoiding. Here we outline five ways to solve many of your accounting issues.
1 Know the difference between profit and cash flow
It’s important to understand the difference between profit and cash flow. Your profit is what you’ll be taxed on at the end of the financial year, whereas your cash flow is what’s actually in your bank (each month) as money comes in and goes out of your business.
It can be easy to make a profit but have issues with cash flow. Keep track of what you’re spending and selling.
Remember: You may have a profitable business, but it can still become bankrupt by having all its money tied-up in assets, leaving you unable to pay its expenses.
2 Understand the impact of purchasing assets
If you decide to buy assets like machinery or office equipment with cash, it will reduce your cash reserves. And by doing so, you might be placing your business at risk.
You also will not be able to claim the whole cost of the asset as an expense. Leasing could be a better option as it spreads the cost over time, meaning your cash lasts longer rather than being spent in one hit.
When you decide to make a major business purchase, such as a new vehicle, also think about taking out a short-term loan.
3 Take your bookkeeping seriously
For your sake, your accountant’s sanity, and to satisfy the tax department, you’ll want to build an accurate and reliable picture of your business’s health. Not only are there laws to be met, but you’ll be able to determine how well (or how poorly) your business performed over a certain period.
These days, many small business owners use online accounting software to keep an electronic record of their receipts and payments in the cloud. Look at the online accounting options that could enhance your bookkeeping accuracy.
4 Keep up to date with your accounting records
Keeping accurate records of all your business’s transactions (even the seemingly insignificant ones) is essential to running a successful business. Assigning a few minutes, a day to sorting your invoices and receipts will help you avoid having to untangle a web of neglected records come tax time.
By staying on top of your smaller transactions, it will be a lot easier to manage the larger ones. You’ll be able to consistently manage your books and continue growing your business in confidence as the numbers of transactions increase.
5 Separate your business expenses from personal ones
One of the most widespread accounting errors involves mixing up personal and business expenses. Keeping all your business finances in one place will make tax time much more bearable.
Ideally, you will want to be able to browse your business’s accounts at the end of each month and be sure no personal expenses are included. Get a dedicated business credit card to ensure all relevant business purchases can easily be accounted for.
If you need to know how you’re going about record keeping, your plans for your business or opening a business bank account, contact us today at partner@collinsco.com.au
